On Monday, Judge Kathaleen McCormick of the Delaware Court of Chancery ruled that Tesla CEO Elon Musk is not eligible to receive his $56 billion pay package. This decision comes despite Tesla shareholders voting to reinstate the package six months ago. Previously, in January, Judge McCormick had issued an initial ruling deeming the package excessive and invalidating it, surprising investors.
The decision has created uncertainty about Musk’s future at the world’s most valuable automaker. Tesla’s board of directors argued that the massive compensation plan was necessary to retain Musk at the company, a point the billionaire—already the world’s richest person—agreed with. The court also ordered Tesla to pay $345 million in legal fees to attorneys who filed the lawsuit, a significantly lower amount than the billions initially requested.
Tesla had argued in court filings that the judge should recognize the June shareholder vote supporting Musk’s pay package. They contended that Musk is the driving force behind the company and responsible for many of Tesla’s advancements. Tesla and its shareholders maintained that Musk achieved the initial milestones outlined when the pay package was drafted.
Musk’s compensation plan was first established by Tesla in 2017. It outlined conditions under which Musk could receive 12 tranches of stock options depending on whether the company met specific revenue and market capitalization goals. Shareholders approved the package by a wide margin in 2018. However, an investor filed a lawsuit, claiming that the board had misled shareholders and that the compensation plan was unfair. Prominent shareholders, such as Norway’s sovereign wealth fund and California’s teacher pension system, voted against the package but were unsuccessful in blocking it.
When the pay package was approved in June, Musk took the stage at a Tesla event, saying, “I just want to start by saying, this is amazing. I love you guys!” He has not yet commented on Judge McCormick’s latest decision. However, in the past, Musk has criticized the judge and urged other business owners to avoid Delaware, where most U.S. companies are incorporated due to its business-friendly tax policies. Musk moved Tesla’s headquarters from California to Texas, though the lawsuit over the pay package has continued under Delaware jurisdiction.
Previously, Judge McCormick had ruled that Tesla’s board conducted a “severely flawed” process in determining Musk’s compensation. She noted that the board was rife with personal conflicts and included close allies of Musk, such as his former divorce attorney.
