A judge in Delaware has invalidated the pay package that Elon Musk received from Tesla, which totaled roughly $56 billion.
On Tuesday, Chancellor Kathaleen St. Jude McCormick ruled that the board of directors of the electric car company wasn’t able to justify Musk’s compensation plan, all of which was tied to how he performed as the company’s CEO.
Musk was heavily involved in negotiating that compensation package, and some of the board members with whom he negotiated have a deep personal connection to him, the judge stated.
“The process leading to the approval of Musk’s compensation plan was deeply flawed,” the judge wrote in her ruling. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
The head judge also pointed out that the compensation package was more than 30 times as much as the one he had prior.
The case was brought by some Tesla shareholders, who argued that Musk’s package should be voided because of what they called sham negotiations. Lawyers for the plaintiffs also argued that, while shareholders approved the agreement, they were provided with incomplete and misleading disclosures prior to taking a vote.
Musk’s legal team countered that by arguing that not only were the members of the negotiating committee independent, but the performance milestones were “so lofty” that many investors ridiculed them as being unobtainable.
Following the ruling, Musk took to his social media platform X to advise people to never incorporate a company in the state of Delaware.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
Many companies are incorporated in the state — even if they are not located there — because of the big tax benefits of doing so.
This decision comes at a time when Musk says that he wants his next Tesla compensation package to result in him owning 25% of the company. He currently owns 13%, based on his shares.
During an earnings call recently, Musk said he needs that amount of stake in the company to be motivated to continue developing technologies under its umbrella. He said that would give him enough influence in Tesla, but wouldn’t give him complete control or even a majority stake.
Without that level of ownership, Musk has said it might make sense for him to develop further technologies outside of Tesla.
