Elon Musk’s record-setting Tesla pay package was struck down once again by a Delaware judge, threatening to wrest billions of dollars from the world’s richest person and one of Donald Trump’s closest confidants.
Delaware Chancery Court Judge Kathaleen St. J. McCormick ruled Monday that Tesla’s board was improperly influenced by Musk when it adopted the billionaire’s plan in 2018. It was the second time she rejected the pay package as excessive, sticking with her original finding in January even after shareholders backed the plan and Musk asked her to reconsider.
“There were undoubtedly a range of healthy amounts that the board could have decided to pay Musk,” McCormick wrote in her 101-page decision. “Instead, the board capitulated to Musk’s terms.”
McCormick’s ruling voiding the highest-ever pay arrangement for a US corporate executive could take a giant bite out of Musk’s wealth. But even without the payout, he remains the world’s richest person, with Tesla’s stock soaring as investors bet on the billionaire’s close relationship with Trump.
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Musk’s wealth hit an all-time high last month — surpassing the previous record of $340.4 billion set in November 2021 — thanks to a Tesla stock rally following the presidential election and a new funding round for his artificial intelligence startup.
The stock options package was initially worth $2.6 billion (€2.5 billion) and spiked to $56 billion by the time the judge canceled it. The package was worth $101.5 billion at Monday’s closing price. Tesla shares fell following the ruling in after-hours trading in New York.
McCormick’s decision, if it stands, effectively means Tesla’s board would have to come up with a new proposal.
But shortly after Monday’s ruling, the company’s board said it will appeal the decision with the Delaware Supreme Court. That process that could take months. Unlike the US Supreme Court — which chooses which cases to hear — the state’s top court must accept any appeals of lower-court decisions.
The billionaire was quick to react to the ruling on his social media platform X, formerly known as Twitter, simply posting “absolute corruption.” He had previously said he needed a bigger stake in Tesla to maintain control of the electric-car maker and expand further into artificial intelligence.
Musk, 53, spent much of October campaigning for Trump, including speaking at a Madison Square Garden rally in New York City about a week before the election. The president-elect has tapped Musk to co-lead a cost-cutting effort that the new administration is calling “DOGE,” or the “Department of Government Efficiency.”
The compensation case was initially filed by shareholder Richard Tornetta, who accused board members of failing to exercise independence as they drew up the pay package for Tesla’s chief executive officer in 2018 and allowing him to improperly engineer the details of his pay plan to his liking.
McCormick, the Delaware judge, sided with Tornetta in January and rejected the package for the first time. But Tesla shareholders at the company’s annual meeting in June voted to revive the compensation plan, sending it back to McCormick for a second review.
McCormick dismissed Musk’s arguments that a second shareholder vote – held after she initially struck down his massive pay package – provided grounds to reassess her earlier ruling.
In her ruling, she pushed back on the idea that a “stockholder vote can be deployed to reverse any form of judicial ruling, whatever the ruling, no matter how final,” adding that Tesla’s board and its co-founder had no grounds “for flipping the outcome of an adverse post-trial decision based on evidence they created after trial.”
McCormick also awarded $345 million to Tornetta’s lawyers. While that amount was far less than the attorneys’ request to be compensated with 29 million Tesla shares — more than $10 billion at the company’s current share price — it’s still among the largest lawyer paydays in US shareholder litigation.
“We hope that the Chancellor’s well-reasoned decision will end this matter for the shareholders of Tesla,” said lawyers at the firm of Bernstein Litowitz Berger & Grossmann who led the litigation on behalf of Tornetta.
Musk moved his companies out of Delaware for incorporation purposes in the wake of McCormick’s January ruling. He’s encouraged other business owners to leave the state, which as of last year counted itself as the corporate home to more than 67% of Fortune 500 companies. -- Bloomberg
