In a groundbreaking verdict, a judge in the state of Delaware has nullified Tesla chief executive Elon Musk’s staggering $56 billion compensation package. The decision, rendered on January 30, 2024, favored a shareholder, Richard Tornetta, who argued that Musk was excessively compensated.
Delaware Chancery Court Judge Kathaleen McCormick endorsed the annulment of Musk’s colossal 2018 compensation agreement, reaching a staggering $55.8 billion. The court ruled in favor of Tornetta, stating he was “entitled to rescission.” Judge McCormick directed the involved parties to confer and present a joint letter outlining all matters, including fees, to conclude the case at the trial level.
Following the release of the 200-page ruling, Tesla’s share price experienced a dip of over three percent during after-hours trading.
In response to the verdict, Musk, the wealthiest individual globally, shared a succinct message on X (formerly Twitter), stating, “Never incorporate your company in the state of Delaware.” No immediate comment was provided by Musk’s legal representative.
Expressing gratitude for the court’s decision, Greg Varallo, who represented the shareholders, stated, “We are enormously grateful for the court’s thorough and extraordinarily well-reasoned decision in turning back the Tesla board’s absurdly outsized pay package for Musk.”
Judge McCormick labeled Musk’s 2018 compensation plan as “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” The plan, valued at a maximum of $55.8 billion, allowed Musk to receive Tesla shares in 12 tranches based on specific performance criteria.
During the trial, Musk recounted the challenges Tesla faced, emphasizing the low probability of survival when the pay deal was approved. Since then, Tesla’s share price has soared, propelling Musk to the top of the world’s wealthiest individuals.
McCormick characterized Musk as the quintessential ‘Superstar CEO,’ citing his influential corporate positions and deep ties with directors involved in negotiating his compensation plan. She described the process leading to the plan’s approval as “deeply flawed,” given Musk’s extensive connections with those negotiating on Tesla’s behalf.
The non-jury trial coincided with Musk’s acquisition of X and his leadership of the spacecraft manufacturer SpaceX. Musk’s vision for Tesla’s future, particularly in artificial intelligence and robotics, has recently been communicated, stating a need for around 25 percent voting control to pursue these ambitions.
