Elon Musk's Tesla pay package, now worth $101B, rejected again
A Delaware judge has rejected Tesla CEO Elon Musk's $56 billion compensation package, even though shareholders had approved it in June. With Tesla's recent surge in stock price, the potential value of this package has now exceeded $100 billion. Court of Chancery Chancellor Kathaleen McCormick upheld her earlier January decision that had deemed the pay package excessive and rescinded it. The ruling has raised questions about Musk's future at the world's most valuable car manufacturer.
Tesla plans to appeal against the ruling
In response to the ruling, Tesla has announced its intention to appeal to the Delaware Supreme Court. The company said, "The ruling is wrong, and we're going to appeal," claiming that the judge had overruled a supermajority of shareholders. The appeal process can begin as soon as McCormick issues a final order, which could be as early as this week.
Judge McCormick's stance on Tesla's compensation package
McCormick said Tesla's board wasn't entitled to hit "reset" to restore Musk's pay package. She argued against the practice of letting defeated parties create new facts for the purpose of revising judgments, saying it would make lawsuits interminable. The judge also noted a ratification vote like the one used by Tesla had to be conducted before the trial and a company can't ratify a transaction involving a conflicted controller.
Tesla's stock performance and future prospects
Following the ruling, Tesla's shares fell 1.4% in after-hours trading. Gary Black, managing partner of The Future Fund (which owns Tesla stock), said he believed the Delaware Supreme Court was more pragmatic than McCormick. He hinted this ruling may not be resolved anytime soon and could be overturned by a more moderate court along the way.
Musk's compensation package and Tesla's market value
Musk's pay package, initially worth up to $56 billion, was structured to grant him stock options if the company achieved certain performance and valuation targets. However, after a 42% surge in Tesla's shares since November 5, when Donald Trump won the US presidential election with Musk's support, the worth of this pay package has now increased to nearly $101 billion.
Plaintiff's laywers to be paid $345 million by Tesla
Beyond the primary ruling, McCormick ordered Tesla to pay a significant $345 million in legal fees to the attorneys who filed the lawsuit on behalf of dissatisfied Tesla shareholders. While this is a significant reduction from the initial $6 billion request by plaintiff's laywers, it still represents one of the largest fee awards in securities litigation history. Tesla has the option to pay this fee in either cash or stock.
