A judge has once again rejected Musk’s multi-billion-dollar Tesla pay package. Now what?
DETROIT– For the second time, a Delaware judge has overturned a pay package Tesla awarded to its CEO, Elon Musk, once valued at $56 billion.
On Monday, Chancellor Kathaleen St. Jude McCormick said has denied a request from Musk’s lawyers to reverse a ruling she announced in January that rejected the compensation plan. The judge then ruled that Musk actually controlled Tesla’s board and had devised the excessive pay package during the period mock negotiations.
Lawyers for a Tesla shareholder who sued to block the pay package argued that shareholders who voted in favor of the 10-year plan in 2018 were given misleading and incomplete information.
In their defense, Tesla board members claimed that the shareholders who ratified the pay plan for a second time in June had done so after receiving full disclosures, which resolved all the issues the judge raised in her January ruling. As a result, they argued, Musk deserved the pay package because he had increased Tesla’s market value by billions of dollars.
McCormick rejected that argument. In her 103-page opinion, she ruled that Tesla’s lawyers had no reason under Delaware law to reverse her January ruling “based on evidence they created after the trial.”
On Monday evening, Tesla posted on X, Musk’s social media platform, that the company will appeal. The appeal would be filed with the Delaware Supreme Court, the only appellate court that can prosecute Tesla. Experts say a ruling will likely come within a year.
“If the ruling is not overturned, it will mean that judges and plaintiffs’ attorneys will be running the Delaware corporations instead of their rightful owners – the shareholders,” Tesla argued.
Later, on
Legal authorities generally suggest that McCormick’s ruling was sound and satisfied the law. Charles Elson, founder and director of the Weinberg Center for Corporate Governance at the University of Delaware, said he believes McCormick was correct in ruling that after Tesla lost its case in the original lawsuit, it improperly created new evidence by targeting shareholders. ask for ratification of the matter. the pay package a second time.
Had she granted such a claim, he said, it would mark a major change in Delaware’s laws against conflicts of interest, given the unusually close relationship between Musk and Tesla’s board.
“Delaware protects investors — that’s what she did,” said Elson, who has followed the court for more than 30 years. “Just because you’re a ‘superstar CEO’ doesn’t put you in a separate category.”
Elson said he thinks investors would be reluctant to put money into Delaware companies if exceptions to the law existed for “special people.”
Elson said he believes the court will likely uphold McCormick’s ruling.
Experts say no. Ruling on state law is normally left to state courts. Brian Dunn, program director of the Institute of Compensation Studies at Cornell University, said it is his experience that Tesla has no choice but to remain in court in Delaware for this compensation package.
The company could try to reshape the pay package and seek approval in Texas, where it may expect friendlier judges. But Dunn, who has worked as an executive compensation consultant for 40 years, said it is likely that another shareholder will challenge the Texas pay, saying it is excessively high compared to other CEOs’ pay plans.
“If they just want to turn around and hand him $56 billion, I can’t believe anyone wouldn’t want to litigate that,” Dunn said. “It is an unimaginably high amount.”
Almost certainly. Tesla shares trade at 15 times the strike price of stock options in the current package in Delaware, Morgan Stanley analyst Adam Jonas wrote in a note to investors. Tesla’s stock price has doubled in the past six months, Jonas wrote. At Monday’s closing price, the Musk package is now worth $101.4 billion, according to Equilar, an executive data firm.
And Musk has asked for another pay package that would give him 25% of Tesla’s voting shares. Musk has said he doesn’t feel comfortable moving forward with artificial intelligence with the company if he doesn’t have 25% control. He currently owns approximately 13% of Tesla’s outstanding shares.