DOVER, Dela. (Diya TV) — A Delaware state court judge has nullified the 2018 pay deal that catapulted Tesla CEO Elon Musk to one of the wealthiest individuals globally.
Ruling on the bench trial concluded in November 2022, Delaware Chancery Court Chancellor Kathaleen McCormick declared that Musk and the Tesla board “had to prove the fairness of the compensation plan, which they failed to do.”
The package, entailing 303 million split-adjusted stock options, now valued at $51 billion, faced scrutiny for its alleged excessiveness and questions regarding the independence of Tesla’s board from Musk’s influence.
Arguing against the package, shareholders’ attorneys contended that the financial targets set for Musk were not sufficiently challenging, resembling internal growth projections more than shareholder-approved “stretch performance goals.”
Expressing gratitude for the court’s decision, plaintiff’s attorney Greg Varallo highlighted the benefit to Tesla investors from the eradication of dilution caused by the substantial pay package.
Despite Musk’s reliance on the shareholder vote approving the package and the meteoric rise in Tesla’s market value since, the court rebuffed arguments that the package was reasonable compensation. Moreover, McCormick refuted claims that throwing out the package would leave Musk uncompensated, citing his significant preexisting equity stake in Tesla.
Musk’s recent statement emphasized the importance of increasing his stake in Tesla to safeguard against external control, indicating a desire for a 25% voting share. The decision’s implications, which can be appealed to the Delaware Supreme Court, may impact Musk’s ability to maintain influence within the company.
As the legal battle continues, attention turns to Tesla’s next steps in remunerating its CEO and preserving his focus on the company’s success amid his diverse array of ventures, including SpaceX and the newly rebranded X (formerly Twitter).
