A Delaware judge on Tuesday voided the $56 billion pay package of Tesla CEO Elon Musk, ruling that the corporate’s board of directors did not prove “that the compensation plan was fair” or show much evidence that that they had even negotiated with him.
Tesla’s share price slid about 3% in after-hours trading Tuesday following news of the choice within the lawsuit filed by Richard Tornetta, a shareholder in the electrical automaker.
Chancery Court Chancellor Kathaleen McCormick told the parties within the lawsuit to confer on what can be a final order directing Musk to return the compensation he has received under the plan.
Musk can appeal the choice to Delaware Supreme Court.
The pay package that Tesla granted Musk in 2018 was the biggest compensation plan in public corporate history, McCormick noted in her 200-page ruling.
The package made the Tesla and SpaceX boss a centi-billionaire and the richest person on the planet.
That plan had offered Musk the possibility to secure 12 tranches of Tesla stock options, which might vest if the corporate’s market capitalization increased by $50 billion and Tesla achieved a revenue goal.
“Was the richest person on the planet overpaid?” asked McCormick in her decision.
“The stockholder plaintiff on this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan.”
“In the ultimate evaluation, Musk launched a self-driving process, recalibrating the speed and direction along the best way as he saw fit,” the judge wrote. “The method arrived at an unfair price. And thru this litigation, the plaintiff requests a recall.”
McCormick ruled that Tornetta had proved that Musk “controlled Tesla” and that the method resulting in the board’s approval of his compensation was “deeply flawed.”
She wrote that Musk had “extensive ties” with the individuals who were negotiating for Tesla on the package, including members of management “who were beholden to Musk,” amongst them General Counsel Todd Maron, his former divorce attorney.”
“There isn’t any greater evidence of Musk’s status as a transaction-specific controller than the Board’s posture toward Musk through the process that led to the Grant,” McCormick wrote.
“Put simply, neither the Compensation Committee nor the Board acted in the very best interests of the Company when negotiating Musk’s compensation plan. In truth, there’s barely any evidence of negotiations in any respect,” she wrote.
“Relatively than negotiate against Musk with the mindset of a 3rd party, the Compensation Committee worked alongside him, almost as an advisory body.”
Musk didn’t immediately reply to a request for comment.
But in a tweet late Tuesday afternoon, Musk wrote, “Never incorporate your organization within the state of Delaware.”
In a later tweet, he began a poll with the query: “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?”
Tornetta’s lawyer, Greg Varallo, in a press release said, “We’re 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.”
“The Court’s labor will redound on to the good thing about Tesla investors, who will see the dilution from this gargantuan pay package erased,” Varallo said.
McCormick’s ruling hinged on a finding that Musk, slightly than its board of directors and shareholders, controlled Tesla, not less than when it got here to the query of setting his compensation.
The judge wrote: “Along with his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held a number of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the administrators tasked with negotiating on behalf of Tesla, and dominated the method that led to board approval of his compensation plan.”
Tesla and Musk’s attorneys, the court decided, “were unable to prove that the stockholder vote was fully informed since the proxy statement inaccurately described key directors as independent and misleadingly omitted details concerning the process.”
Earlier this month, Musk began angling for 25% of voting control over Tesla.
He currently owns about 13% of the corporate’s stock outright.
“I’m uncomfortable growing Tesla to be a pacesetter in AI & robotics without having ~25% voting control. Enough to be influential, but not a lot that I can not be overturned,” he wrote in a post on X, the social media site formerly generally known as Twitter.
Musk owns X and runs it, having purchased it in late 2022
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