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Judge strikes down Elon Musk's $55 billion Tesla pay package

Grace Kay   

Judge strikes down Elon Musk's $55 billion Tesla pay package
  • A Delaware judge ruled against Elon Musk's $55 billion Tesla compensation package.
  • The judge made the ruling on Tuesday — over a year after the trial began.

Elon Musk just got some bad news.

A Delaware judge ruled to strike down Musk's $55 billion Tesla compensation package on Tuesday, siding with a shareholder who had argued in a lawsuit that the CEO's pay plan was over the top.

The ruling means Tesla will need to propose a new compensation package for Musk, although it can appeal. It also means a large chunk of Musk's fortune, which is mostly tied to his Tesla stock, is now hanging in limbo.

"In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit," Court of Chancery Judge Kathleen St. J. McCormick wrote. "The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall."

The judge said Tesla gave little reasoning in the trial for how it arrived at the price point for the compensation plan and Musk was too close with some of his board members for them to truly act independently.

"The process leading to the approval of Musk's compensation plan was deeply flawed," McCormick wrote. "Musk had extensive ties with the persons tasked with negotiating on Tesla's behalf."

McCormick had heard the trial more than a year prior. Tesla shareholder Richard Tornetta sued Tesla and Musk over the massive pay plan in 2018, arguing that it was "beyond the bounds of reasonable judgment." The shareholder argued that Musk had influenced the board's decision to set up the plan through his close personal relationships with board members, including his brother.

Meanwhile, Tesla argued that the pay was necessary to maintain Musk's focus on Tesla and that shareholders like Tornetta have benefited from Musk's leadership.

Musk, his lawyer, and a spokesperson for Tesla did not immediately respond to a request for comment. Though, the billionaire quickly responded to the ruling on social media.

"Never incorporate your company in the state of Delaware," Musk wrote on X.

Musk does not receive a salary from Tesla and his pay package centers on a series of goalposts around the carmaker's financial growth, initially set in place in 2018. Specifically, the plan involves a 10-year grant of 12 tranches of stock options vested when Tesla hits certain targets. According to the carmaker, Tesla has accomplished all of the 12 targets as of 2023. When each milestone is passed, Musk gets stock equal to 1% of outstanding shares at the time of the grant.

Musk was worth about $204 billion on Tuesday, per the Bloomberg Billionaire Index. The majority of this wealth is the result of his equity in Tesla.

The billionaire has recently voiced his desire for more control over Tesla. Earlier this month, Musk said he'd like around 25% voting control in the EV company. He even appeared to give Tesla's board an ultimatum at the time, saying that without the increased control he'll stop growing AI development at the electric-car maker. (He currently has about a 13% stake in Tesla and had around 22% before he sold off some of his shares to fund his Twitter purchase in 2022.)

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