A $56 billion pay package granted by Tesla to Elon Musk in 2018 has been nullified by a Delaware judge who ruled that the company’s board of directors failed to prove “the compensation plan was fair.”
Chancery Court Judge Kathaleen McCormick voided the payment package to Mr. Musk on Jan. 30 as part of a lawsuit filed by Richard Tornetta, a shareholder in the electric vehicle maker, five years ago.
Under the package offered by Tesla, Mr. Musk had the chance to secure 12 tranches of Tesla stock options, which would vest if Tesla achieved various market capitalization and operational milestones, such as a $50 billion increase in its market capitalization.
Mr. Tornetta had argued the multi-billion-dollar pay package that Tesla granted Mr. Musk—reportedly the largest compensation plan in public corporate history—should be nullified because it was overly excessive.
Additionally, the shareholder claimed that the key milestones Mr. Musk had to achieve in order to receive the pay package—which were described in proxy disclosures as very difficult to achieve—were, in fact, widely expected to be achieved, meaning Mr. Musk would likely qualify for large portions of the pay package.
The lawsuit further argued that a proxy statement issued by Tesla wrongly characterized the board’s Compensation Committee and the board as “independent when they were not,” and claimed that Mr. Musk himself came up with the compensation plan.
Musk Compensation Set at ‘Unfair Price’
Judge McCormick agreed, writing in the 200-page ruling that the company’s board of directors failed to prove “that the compensation plan was fair” or show any evidence that they “ever discussed or negotiated” the compensation package with the businessman.
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price,” the judge wrote.
The process leading to the approval of Mr. Musk’s compensation plan was also deeply flawed, she said.
“In addition to his 21.9 percent equity stake, Musk was the paradigmatic ‘Superstar CEO’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” the judge wrote. “At least as to this transaction, Musk controlled Tesla.”
Concluding her ruling, Judge McCormick ordered Mr. Tornetta to work with Mr. Musk’s legal team on an order implementing her decision and submit a joint letter identifying all issues, including fees, that need to be addressed to bring the matter to a conclusion at the trial level.
Musk ‘Dominated’ Process Leading to Compensation Plan
Tesla’s share price slid about 3 percent in after-hours trading Tuesday.
Responding to the ruling on Tuesday, Mr. Musk wrote on his platform X, formerly known as Twitter, “Never incorporate your company in the state of Delaware.”
In a separate post on the platform, the businessman started a poll asking X users, “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?”
The poll had amassed 545,529 votes at the time of publication.
The Epoch Times has contacted a spokesperson for Tesla for further comment.
Meanwhile, Mr. Tornetta’s lawyer, Greg Varallo, said in a statement: “We are 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 hard work will redound directly to the benefit of Tesla investors, who will see the dilution from this gargantuan pay package erased,” the lawyer added.
The ruling, however, can be appealed to the Delaware Supreme Court.
From The Epoch Times
