Wednesday, January 31, 2024 – A judge in the US state of Delaware voided the $56 billion compensation package of Tesla chief executive Elon Musk on Tuesday, siding with a shareholder who claimed the entrepreneur was overpaid.
The judge in Delaware Chancery Court ruled that the
plaintiff, a Tesla shareholder named Richard Tornetta, was “entitled to
rescission,” approving the annulment of Musk’s 2018 humongous compensation
agreement worth as much as $55.8 billion.
Judge Kathaleen McCormick added that the parties must now
“confer” and then submit a joint letter “identifying all issues, including
fees, that need to be addressed to bring this matter to a conclusion at the
trial level.”
Tesla’s share price fell more than three
percent in after-hours trading following the publication of the 200-page
ruling.
In a message posted to X, formerly Twitter, shortly after
the decision was announced, Musk — the world’s richest person — wrote:
“Never incorporate your company in the state of Delaware.”
A
lawyer for Elon Musk did
not immediately respond to a request for comment.
“We are enormously grateful for the court’s thorough and
extraordinarily well-reasoned decision in turning back the Tesla board’s
absurdly outsized pay package for Musk,” Greg Varallo, who represented the
shareholders, said.
“The court’s hard work will redound directly to the benefit
of Tesla investors, who will see the dilution from this gargantuan pay package
erased,” he added.
Musk’s 2018 compensation plan was “the largest
potential compensation opportunity ever observed in public markets by multiple
orders of magnitude,” McCormick wrote in her decision.
The unusual plan, valued at a maximum of $55.8 billion,
would allow Elon Musk to receive Tesla shares in 12 tranches, based on hitting
certain performance criteria.
Elon Musk was sued, along with Tesla and
some other members of the company’s board of directors; the case went to trial
in 2022.
During his trial in Delaware, Musk told the courtroom that
investors “thought we would fail and go bankrupt,” at the time the pay deal was
approved.
“We were in quite a tough position at the time. We were
losing a lot of money,” he said. “The probability of survival was extremely
low.”
Since the deal was announced, Tesla’s share price has
surged, making it the world’s most valuable car maker by market capitalization
— and propelling the South African-born, naturalized American citizen to the
top of the list of the world’s wealthiest people.
This month, Musk wrote in a post on X that he was
uncomfortable growing Tesla into an artificial intelligence and robotics leader unless
he had around 25 percent voting control.
“Musk was the paradigmatic ‘Superstar CEO,’” according to
McCormick.
He held influential corporate positions, “enjoyed thick ties
with the directors tasked with negotiating on behalf of Tesla, and dominated
the process that led to board approval of his compensation plan,” she wrote.
In her ruling, McCormick wrote that “The process leading to
the approval of Musk’s compensation plan was deeply flawed,” given Musk’s
“extensive ties” to the people negotiating the deal.
Among them was the chair of the compensation committee, Ira
Ehrenpreis, with whom McCormick said Musk had a 15-year relationship.
Another member of the committee, Antonio Gracias, had a
more-than two decade business relationship with Musk, and regularly took
holidays with Musk’s family, she added.
“Given the collection of people tasked with negotiating on
Tesla’s behalf, it is unsurprising that there was no meaningful negotiation
over any of the terms of the plan,” she added.
The non-jury trial took place around the time after Musk
acquired X, and he also leads spacecraft maker SpaceX.
0 Comments