A Delaware judge on Tuesday struck down Elon Musk’s Tesla pay package, valued at $55.8 billion, after ruling that the board failed to prove “that the compensation plan was fair.”
Tesla granted Musk, 52, a 2018 pay package that was “the largest potential compensation opportunity ever seen in the public markets by several orders of magnitude,” Delaware Court of Chancery Judge Kathaleen St. wrote. J. McCormick in a 200-page judgment. Tesla shareholder Richard Tornetta asked a state business court to overturn the package, arguing that the automaker’s board “breached its fiduciary duties by awarding Elon Musk a performance-based compensation plan,” McCormick noted.
According to McCormick, Tornetta proved that Musk “controls Tesla” and that the process that ended up approving Musk’s pay package was “deeply flawed.”
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The judge noted Musk’s “extensive connections with individuals charged with negotiating on Tesla’s behalf,” adding that Musk “initiated the self-driving process, recalibrating speed and direction along the way as he saw fit.”
McCormick wrote that Musk had a “tremendous influence” on Tesla, thanks to his relationship with the company and its executives.
“In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO’, holding some of the most influential corporate positions (CEO, Chairman and Founder), enjoying strong ties to the principals in charge of negotiations in the name of Tesla. , and dominated the process leading to board approval of his compensation plan,” McCormick wrote. “At least as far as this transaction is concerned, Musk controlled Tesla.”
Crafting Musk’s pay package “came at an unfair price,” McCormick wrote, later adding that “Plaintiff is entitled to reversal.”
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Musk’s team “could not prove that the shareholder vote was fully informed because the proxy statement falsely described key directors as independent and misleadingly omitted details about the process,” McCormick wrote.
“The parties should agree on the form of a final order to enforce this decision and file a joint letter identifying all issues, including fees, that need to be resolved in order to bring this matter to a conclusion at the trial level,” the judge’s decision said.
“Never start your company in the state of Delaware,” Musk wrote x (formerly Twitter), shortly after the announcement of the verdict.
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Musk fully owns about 13% of Tesla’s stock, CNBC reports. He is in December chirped that he was “uncomfortable developing Tesla as a leader in AI and robotics without ~25% voting control. Enough to be influential, but not so much that I can’t be overthrown.”
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Source: HIS Education