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A judge ruled Monday that Tesla’s CEO Elon Musk is still not eligible for a $56 billion compensation package, even though the electric vehicle company’s shareholders voted to reinstate it six months ago.
The decision of Delaware judge, Chancellor Kathleen McCormick of the Court of Chancery, followed through on her January ruling that called the pay package excessive and overturned it, surprising investors. The decision cast uncertainty over Musk’s future at the world’s most valuable automaker. Tesla’s board argued that the massive payment scheme was necessary to keep Musk involved in the company, an argument the billionaire, already the world’s richest man, echoed.
McCormick also ordered Tesla to pay the lawyers who brought the suit $345 million, well short of the billions they originally sought.
Tesla said in court filings that the judge should recognize a subsequent vote in June by its shareholders in favor of a pay package for Musk, the company’s driving force responsible for many of its advances, and restore his compensation. Tesla and its shareholders argued that Musk had reached the milestones originally set when drawing up the pay package.
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Tesla originally developed Musk’s pay package in 2017, stipulating that Musk would receive 12 different tranches of stock options depending on whether the company hit certain revenue and market targets. Shareholders approved that package by a wide margin in 2018, but one investor filed a lawsuit claiming the board was misleading and the package unfair. Some prominent shareholders such as Norway’s sovereign wealth fund and the California State Teachers’ Retirement System voted against the pay package to no avail.
When the pay package was approved in June, Musk said in response on stage at a Tesla event, “I just want to start off by saying, damn, I love you guys!” He didn’t immediately respond to McCormick’s latest decision, but criticized her in past and urged other business owners to stay away from Delaware, where most US companies file for incorporation because of friendly tax policies. Musk moved Tesla’s physical headquarters from California to Texas, although the case over the package payment continued before a judge in Delaware.
McCormick previously ruled that Tesla’s board conducted a “deeply flawed” process to determine Musk’s payment.
McCormick found the board fraught with personal conflicts and stacked with close allies of Musk, such as his former divorce lawyer.
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