Tesla CEO Elon Musk Denied $55 Billion Compensation Package by Delaware Judge, Citing Flawed Process

Wilmington, Delaware – A landmark compensation package worth over $55 billion for Tesla CEO Elon Musk has been denied by a Delaware judge. The ruling by Chancellor Kathaleen St. Jude McCormick came after a shareholder lawsuit accused Musk and the company’s directors of breaching their duties and unjust enrichment. The shareholders argued that the compensation was invalid as it was determined by Musk and approved with misleading information given to shareholders. Defense attorneys countered that the pay plan was fairly negotiated by independent members of the compensation committee and approved through a shareholder vote. Musk’s attorney has not yet commented on the ruling.

During trial testimony, Musk denied dictating the terms of the compensation package or attending any meetings regarding it. Chancellor McCormick, however, deemed Musk as a controlling shareholder with a potential conflict of interest, subjecting the pay package to a higher standard. The judge stated that the process leading to the approval of Musk’s compensation plan was flawed and highlighted Musk’s close relationships with compensation committee members.

As a result, Chancellor McCormick concluded that the appropriate remedy was to rescind Musk’s compensation package. The decision has been hailed as a significant legal ruling, with Tesla and Musk’s board losing the battle against the shareholder claim. The compensation plan was contingent on Tesla reaching specific market capitalization and operational milestones. Musk could have received stock equal to 1% of outstanding shares if the company’s market capitalization grew by $600 billion. However, the plan has now been voided, and Musk’s stock option gains totaling nearly $28 billion are subject to a five-year holding period.

Defense attorney Evan Chesler argued at trial that the compensation package was a high-risk, high-reward deal that benefited not just Musk but also Tesla shareholders. He claimed that the plan’s inclusion of the $55 billion figure in the proxy statement was meant to demonstrate the ambitious nature of the potential earnings. Tesla’s market capitalization soared from $53 billion to over $800 billion after the implementation of the compensation plan.

The ruling has significant implications for Musk and the future of executive compensation in publicly traded companies. It marks a rare occurrence where a shareholder claim has successfully challenged such a lucrative pay package for a CEO. This decision may prompt further scrutiny and potential revisions of compensation practices in corporate America.