Why Elon Musk won't receive his $56bn package from Tesla
A judge in the US state of Delaware has canceled a whopping $55.8 billion pay deal for Tesla CEO Elon Musk, which was granted in 2018. This decision came after a shareholder filed a lawsuit, claiming it was an excessive payment. Judge Kathaleen McCormick stated that the Tesla board's approval of the pay package was "deeply flawed." The now-aborted pay agreement would have been the biggest ever in corporate history.
Deal would've ensured Musk's continued attention to firm: Tesla directors
Throughout the week-long trial, Tesla's directors claimed the deal would ensure Musk's continued attention to the firm. However, Judge McCormick stated that Musk and Tesla's lawyers "were unable to prove that the stockholder vote was fully informed." She added that Musk had "extensive ties with the persons tasked with negotiating on Tesla's behalf."
Ruling details and reactions
In her 201-page ruling, Judge McCormick described the compensation as "an unfathomable sum" that wasn't fair to shareholders. She also mentioned that Tesla directors who negotiated the package were "swept up by the rhetoric" of Musk's "superstar appeal." Greg Varallo, the attorney representing Tesla shareholder Richard Tornetta, called it a "Good day for the good guys." Ray Wang, CEO of Constellation Research, said that if the compensation committee had been properly informed, shareholders wouldn't have a case.
Musk wanted to use the money to finance interplanetary travel
Last November, Musk testified that the money from his Tesla compensation would be used to fund Mars missions. "It's a way to get humanity to Mars," he said during the trial. "So Tesla can assist in potentially achieving that." Musk has also been pushing for more stake in Tesla, wanting at least 25% ownership to build AI products and services. "I am uncomfortable growing Tesla to be a leader in AI and robotics without having 25% voting control," he said.
Shares down and possible change of incorporation
Following the ruling, Tesla shares dropped about 3% in extended New York trade. They have lost over 20% of their value this year. In response, Musk said on X, "Never incorporate your company in the state of Delaware." He also suggested incorporating in Texas or Nevada, and asking his followers if Tesla should change its state of incorporation to Texas, where its physical headquarters are located.
Judge McCormick has presided over another legal case involving Musk
With the latest ruling on Musk's Tesla compensation package, Judge McCormick is once again in the spotlight. She is the first woman to lead Delaware's Court of Chancery and is known for her calm disposition and setting high standards for corporates. She also presided over the Twitter lawsuit in 2022. Musk was finding ways to walk out of his aquisition bid but Judge McCormick rejected all arguments and ordered him to complete his $44 billion takeover.
