Elon Musk’s more than $50 billion pay deal at Tesla has been rejected again by a Delaware judge. This ruling marks a significant victory for the Tesla shareholder who filed suit and highlights ongoing concerns about governance and oversight at the electric car company. The saga began in 2018 when Tesla announced a 10-year, performance-based pay package for its CEO.
The package was tied to Tesla’s growth, with Musk earning more shares as the company’s market cap increased. However, some shareholders pushed back. Richard Tornetta filed a lawsuit in 2018, questioning the fairness and transparency of the process.
On Monday, Delaware Court of Chancery Chancellor Kathaleen McCormick ruled that Musk’s pay package cannot be reinstated. She described the process leading to the plan’s approval as “deeply flawed” and pointed to Musk’s significant influence over Tesla’s board as a potential conflict of interest. McCormick emphasized that Musk’s control at Tesla created a “distortion field” that compromised board oversight.
This made it difficult for even independent directors to remain impartial.
Tesla pay package ruling rejected
Tesla’s board attempted to address the judge’s concerns by taking the pay package back to shareholders for a second time.
It was approved with a 72% majority. Nonetheless, this did not persuade McCormick to change her stance. In addition to striking down the compensation plan, the judge awarded Tornetta $345 million in legal fees.
This was far from the $5.6 billion the plaintiffs had asked for, but still a significant amount. Tesla has expressed its disagreement with the court’s decision, describing it as “wrong.” The company plans to appeal in the Delaware Supreme Court. Musk, through the social media platform X (formerly Twitter), contended that shareholders should control company votes, not judges.
The appeal process will be closely watched. It could have broader implications for corporate governance and executive compensation practices in Delaware, a state known for its business-friendly laws. Attorneys for the shareholders who opposed Musk’s pay are prepared to defend the court’s ruling on appeal.
They assert that the judge’s decision was both thoughtful and well-grounded.
