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Elon Musk’s $55bn pay package from Tesla has been voided by a Delaware judge, who ruled that the unprecedented remuneration was improperly approved by the electric-car maker’s board of directors and had short-changed the company’s shareholders.
The order from the Delaware Court of Chancery on Tuesday sent Tesla shares down more than 4 per cent in after-market trading, dealing a blow to Musk as he seeks billions of dollars of investment for a new artificial intelligence company.
The Delaware judge overseeing the case, Kathaleen McCormick, said that Musk still controlled the board through his personality and influence, even with just a 22 per cent stake in Tesla, and that the board could not demonstrate the share grant had been done at a fair price and through a fair process.
“Musk was the paradigmatic ‘Superstar CEO’ . . . and dominated the process that led to board approval of his compensation plan,” McCormick wrote.
Musk posted on X earlier this month that he would like another Tesla stock grant in order to ensure a larger stake, which he said would encourage him to put other nascent ventures under the Tesla umbrella.
But if the ruling is upheld and Musk’s remuneration plan is scrapped, he will lose options over 303mn Tesla shares, close to 10 per cent of the company. That would leave his stake at 13 per cent — well below his goal of 25 per cent ownership.
It could also imperil Musk’s position as the world’s richest person, with a fortune of $251bn at the start of this year, according to Forbes. Bernard Arnault, chief executive of luxury goods brand LVMH, is second on the list with a personal fortune of $201bn, according to Forbes.
Tuesday’s ruling relates to a 2018 decision to offer Musk the largest ever remuneration package for a public company chief executive, with a potential payout of up to $55.8bn if Tesla hit certain performance targets.
That award was “250 times larger than the contemporaneous median peer compensation plan and over 33 times larger than the plan’s closest comparison, which was Musk’s prior compensation plan”, according to the ruling, which followed a one-week trial in 2022.
Some Tesla shareholders sued, arguing that the award was excessive and has been pushed through by Musk.
As well as serving as the company’s chief executive and chair, Musk “enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan. At least as to this transaction, Musk controlled Tesla,” wrote McCormick in the ruling.
A different Delaware judge in 2022 had ruled that Musk did not improperly influence the merger price between Tesla and solar panel company SolarCity, two companies in the entrepreneur’s portfolio that merged in a 2016 share swap. Tesla shareholders who sued had claimed that Musk had forced the deal, which they described as a SolarCity “bailout”, to their detriment, but lost the lawsuit.
McCormick had presided over litigation stemming from Musk’s initial attempt in 2022 to walk away from his $44bn acquisition of Twitter. On the eve of a trial, he capitulated and agreed to complete the purchase on the original terms, a deal that forced him to sell billions in Tesla shares to help raise the necessary cash.
“Never incorporate your company in the state of Delaware,” Musk posted on X after Tuesday’s decision. “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”
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