- A judge has rescinded a pay package of US$56 billion to Elon Musk for the second time
- The ruling said Musk influenced the board during original pay negotiations
- Musk and Tesla plan to appeal the decision, which could take another year to play out
Recommended Videos
Ever looked at the headlines of a CEO getting millions in pay and thinking no executive is worth that much? That seems to be the opinion of a U.S. judge who rescinded a pay package of US$56 billion for Tesla chief Elon Musk — and marking the second time she did.
The judge, Chancellor Kathaleen McCormick of the Delaware Supreme Court, announced her 101-page decision at the beginning of December, upholding the similar ruling she made last January. Unsurprisingly, Musk has taken to Twitter – okay, okay, X – to criticize the decision and announce his intention to appeal it. Such an appeal could put everything back in limbo for a year.
All of this dates back to 2018, when Tesla’s board said that Musk, who doesn’t draw a salary from the electric vehicle company, deserved the US$56-billion package for meeting targets on revenue and profitability. It was one of the largest ever awarded to the head of a public company, but it ended up in the courts when a Tesla shareholder challenged it in court.
In her January ruling, McCormick called the package “unfathomable.” The ruling was based on her conclusion that Musk had “overwhelming influence” on the board during the negotiations and dictated the terms of the plan to the directors, even though he only held about 22% of the auto company’s stock; and that the directors were “not independent” and approval of the payment was “deeply flawed.” The amount was 33 times larger than the pay package he’d been given in 2012.
Following the initial decision, Tesla’s shareholders met last June and ratified the pay package again with a large majority — and with many shareholders saying at time that the rescinded package might result in Musk leaving Tesla or developing new products and artificial intelligence at other firms. In the recent case, Musk’s attorneys argued the shareholders’ June decision proved they want Musk to have the pay package, even after learning of the flaws in the board’s original decision to give it to him, which McCormick had pointed out in her January ruling.
McCormick rejected that argument, saying it was fatally flawed and that a stockholder vote alone could not overturn a transaction involving a conflicted controller. In her decision, she wrote that, “The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law.”
The three law firms who represented the dissenting shareholders and brought the case before the Delaware court also got a bit greedy, asking for US$6 billion from Tesla for their work. McCormick said that, “In a case about excessive compensation, that was a bold ask,” and awarded them US$345 million for their work, which Tesla can pay in cash or stock to them.
On Twitter X, Musk posted that “Shareholders should control company votes, not judges.” Tesla posted that “A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth,” and that “The court’s decision is wrong, and we’re going to appeal.”
The pay package was in stock options, and that original US$56 billion is now worth approximately US$101 billion.
Following the U.S. election, president-elect Donald Trump said he will appoint Musk as co-leader of his new Department of Government Efficiency – to which we ask, wouldn’t just one person leading it be more efficient? – tasked with reducing government spending. Since it’s not an official government office, Musk won’t hold a government position, which will allow him to keep his position at Tesla, SpaceX, and other companies. It’s estimated that the Tesla stock he currently holds, not counting this disputed pay pack, is worth around US$150 billion.
Sign up for our newsletter Blind-Spot Monitor and follow our social channels on X, Tiktok and LinkedIn to stay up to date on the latest automotive news, reviews, car culture, and vehicle shopping advice.