- A Delaware judge has declared Tesla’s $56 billion pay package to CEO Elon Musk invalid, deeming the compensation an “unfathomable sum” that unjustly enriches Musk and breaches the automaker’s fiduciary duty to shareholders.
- The court’s decision underscores concerns about corporate governance and prompts Elon Musk to contemplate shifting Tesla’s state of incorporation, signaling potential ramifications for the electric car manufacturer’s future.
In a dramatic turn of events, a judge in Delaware has declared Tesla’s $56 billion pay package to CEO Elon Musk invalid, labeling the compensation as an “unfathomable sum” that is unjust to shareholders. The decision comes in response to a lawsuit filed by Tesla shareholder Richard Tornetta, who accused the electric car manufacturer of breaching its fiduciary duty by approving a package that excessively enriches Musk.
The Unraveling of the Pay Package
Tesla awarded Elon Musk the staggering $56 billion pay package in 2018, catapulting him to the zenith of the world’s richest lists. However, the court of Chancery in Delaware, as revealed in its decision on the Tornetta lawsuit, has now deemed the entire deal invalid. Judge Kathaleen McCormick emphasized Musk’s close ties with the directors responsible for negotiating the pay package, asserting that there was no genuine negotiation on its terms.
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The judge pointed out that Musk owned 21.9 percent of Tesla during the negotiation, providing him with a substantial incentive to drive the company to transformative growth. For every $50 billion increase in market capitalization, Musk stood to gain a staggering $10 billion. McCormick questioned the necessity of the pay plan, criticizing the board for not probing whether it was vital for Tesla to retain Musk and achieve its goals.
Judicial Rebuke and Entitlement to Rescission
Judge McCormick, in her scathing rebuke, highlighted that the board seemed “swept up by the rhetoric of ‘all upside'” and failed to ask the crucial question: Was the $55.8 billion pay plan necessary for Tesla’s success? The court ruled in favor of Tornetta, declaring him entitled to a “rescission.” Consequently, Tesla and its shareholders are mandated to carry out the decision, effectively unwinding the controversial deal. Musk’s legal team, however, retains the option to appeal the ruling.
Musk’s Reaction and Contemplation of Corporate Shift
Elon Musk responded to the court’s decision with a tweet, advising against incorporating a company in the state of Delaware. He further initiated a poll, seeking opinions on whether Tesla should change its state of incorporation to Texas, where its physical headquarters are situated. This move hints at Musk’s willingness to explore alternatives amid the legal battle.
Musk’s Shifting Tesla Holdings and Ambitious Plans
Despite the legal setback, Elon Musk has been actively managing his Tesla holdings. He sold some Tesla stocks to fund his acquisition of Twitter, now X, after the approval of his pay package. Currently owning around 13 percent of Tesla, Musk expressed his desire to secure 25 percent control over the company before expanding it into a leader in artificial intelligence (AI) and robotics.
Conclusion
The court’s ruling in Delaware not only invalidates Tesla’s colossal pay package to Elon Musk but also raises questions about corporate governance and fiduciary responsibility. As the legal battle unfolds, Musk’s tweets and actions continue to draw attention, leaving stakeholders and industry observers eager to witness the next chapter in this high-stakes saga.
