Judge nullifies Tesla's $56 billion pay package for Elon Musk

The Tesla chief executive, Elon Musk, has been deemed unable to retain his colossal $56 billion pay package, as ruled by a judge in the state of Delaware in the United States. The judge concluded that the compensation awarded to Musk was excessive.

In a recent court ruling, a Delaware judge has declared Tesla CEO Elon Musk’s $56 billion (€51.1 billion) compensation package as invalid. The judge agreed with a shareholder’s claim that the amount was excessive and unfair.

The court filing referred to the compensation as “an unfathomable sum” that did not benefit the shareholders. As a result, Tesla’s stock experienced a decline of over 3% in after-hours trading, following the publication of the extensive 200-page ruling.

What was the subject matter of the legal case?

Over five years after filing a lawsuit against Tesla CEO Elon Musk and the company’s directors, Chancellor Kathaleen McCormick made the decision.

They allegedly violated their responsibilities towards the electric vehicle and solar panel manufacturer, leading to the misuse of company resources and unjust enrichment for Musk.

The legal representatives of shareholders argued that Musk influenced and tainted the compensation package through fraudulent negotiations with non-independent directors, demanding its invalidation.

What was the judge’s statement regarding Musk’s pay package at Tesla?

McCormick pointed out that the board, captivated by the allure of limitless potential or maybe blinded by Musk’s celebrity status, failed to question whether the $55.8 billion plan was truly essential for Tesla to keep Musk on board and accomplish its objectives.

Upon reaching a consensus on the final order and attorneys’ fees covered by Tesla for shareholders, there exists a possibility to appeal the judge’s decision.

What was Musk’s reaction?

Musk expressed his disapproval of incorporating a company in Delaware through a message on X, previously known as Twitter, following the announcement of the decision. In a subsequent post on X, he suggested incorporating in Nevada or Texas for those who prioritize shareholders’ involvement in decision-making.

In 2022, after acquiring Twitter, Elon Musk relocated the company’s state of incorporation from Delaware to Nevada. Recently, Musk requested Tesla’s board to devise a fresh compensation plan granting him a 25% stake in the company.