Elon Musk will not receive that $55 billion pay package after all, a judge in the Delaware Court of Chancery has ruled. The ruling means that Tesla’s board must come up with a new proposal.
The ruling threatens Musk’s fortune if he appeals. Bloomberg reports. Without the options in that package, Musk might be the third richest man in the world.
Tesla shareholders approved the package in 2018, giving Musk an incentive to reach specific milestones, including a market valuation of $650 billion, which was more than ten times Tesla’s value at the time. The trial revolved around a specific question: Did Musk mislead shareholders when he gave them the plan?
Tesla shareholders approved the package in 2018
Greg Varallo, an attorney for the suing investor Richard Tornetta, said investors were not told that Musk himself came up with the plan or that the board members were beholden to Musk. Last February, Judge Kathaleen McCormick called this argument a “kill shot.”
“Defendants failed to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process,” McCormick wrote in her decision. “The defendants proved that Musk was uniquely motivated by ambitious goals and that Tesla urgently needed Musk to succeed in the next phase of development, but these facts do not justify the largest compensation plan in the history of the public markets.”
One of the big questions in the case was how much of Tesla Musk owned – and not just through his shares. “Musk had the maximum influence a manager can have on a company,” McCormick wrote.
The board of directors included many people who had close relationships with Musk:
- Elon Musk.
- Antonio Gracias, a compensation committee member and friend of Musk, who has amassed a lot of wealth investing in Musk’s companies as far back as PayPal.
- James Murdoch, another Musk friend who vacationed around the world with Musk.
- Musk’s brother, Kimbal.
- Ira Ehrenpreis, one of the members of the compensation committee, acknowledged to the court that his relationship with Elon and Kimbal Musk “significantly affected his professional career.”
- Brad Buss, another compensation committee member who “owed 44 percent of his net worth to Musk entities.”
- Robyn Denholm, a compensation committee member whose compensation as Tesla’s chairman was more money than she earned from other sources.
- Linda Johnson Rice, who seems to have been truly independent.
- Steve Jurvetson, who was absent for an extended period during this incident and was not considered a major player by the judge.
“In the end, the key witnesses said it all: They were there to work with Musk, not negotiate against him,” McCormick wrote.
“They were there to work with Musk, not to negotiate against him.”
Musk has been demanding more control over Tesla lately X earlier this month that he wanted at least 25 percent ownership of the company to continue his work in artificial intelligence. That would be roughly double his current ownership stake of about 13 percent.
Musk said in follow-up posts that he was waiting for a ruling in the shareholder lawsuit before presenting his proposal for a larger ownership stake to the board. “The reason there is no new ‘compensation plan’ is that we are still waiting for a decision in my compensation case in Delaware,” he wrote on January 15. “The trial for this took place in 2022, but a judgment has yet to be reached.”
He added: “I put ‘compensation plan’ in quotes because from my perspective it is primarily about ensuring the right amount of voting influence at Tesla.”
Minutes after today’s ruling, Musk posted: “Never locate your business in the state of Delaware.”