Elon
Musk

the
CEO
of
Tesla
and
SpaceX
and
owner
of
X,
formerly
Twitter

speaks
during
the
New
York
Times
annual
DealBook
summit
in
New
York
City,
Nov.
29,
2023.

Michael
M.
Santiago
|
Getty
Images

A

Delaware

judge
on
Tuesday
voided
the
$56
billion

pay

package
of


Tesla

CEO

Elon
Musk
,
ruling
that
the
company’s
board
of
directors
failed
to
prove
“that
the
compensation
plan
was
fair”
or
show
much
evidence
that
they
had
even
negotiated
with
him.

Tesla’s
share
price
slid
about
3%
in
after-hours
trading
Tuesday
following
news
of
the
decision
in
the
lawsuit
filed
by
Richard
Tornetta,
a
shareholder
in
the
electric

automaker
.

Chancery
Court
Chancellor
Kathaleen
McCormick
told
the
parties
in
the
lawsuit
to
confer
on
what
would
be
a
final
order
directing
Musk
to
return
the
compensation
he
has
received
under
the
plan.

Musk
can
appeal
the
decision
to
Delaware
Supreme
Court.

The
pay
package
that
Tesla
granted
Musk
in
2018
was
the

largest
compensation
plan

in
public
corporate
history,
McCormick
noted
in
her
200-page
ruling.

The
package
made
the
Tesla
and
SpaceX
boss
a
centi-billionaire
and
the
richest
person
on
the
planet.

That
plan
had
offered
Musk
the
chance
to
secure
12
tranches
of
Tesla
stock
options,
which
would
vest
if
the
company’s
market
capitalization
increased
by
$50
billion
and
Tesla
achieved
a
revenue
target.

“Was
the
richest
person
in
the
world
overpaid?”
asked
McCormick
in
her
decision.

“The
stockholder
plaintiff
in
this
derivative
lawsuit
says
so.
He
claims
that
Tesla,
Inc.’s
directors
breached
their
fiduciary
duties
by
awarding
Elon
Musk
a
performance-based
equity-compensation
plan.”

“In
the
final
analysis,
Musk
launched
a
self-driving
process,
recalibrating
the
speed
and
direction
along
the
way
as
he
saw
fit,”
the
judge
wrote.
“The
process
arrived
at
an
unfair
price.
And
through
this
litigation,
the
plaintiff
requests
a
recall.”

McCormick
ruled
that
Tornetta
had
proved
that
Musk
“controlled
Tesla”
and
that
the
process
leading
to
the
board’s
approval
of
his
compensation
was
“deeply
flawed.”

She
wrote
that
Musk
had
“extensive
ties”
with
the
people
who
were
negotiating
for
Tesla
on
the
package,
including
members
of
management
“who
were
beholden
to
Musk,”
among
them
General
Counsel
Todd
Maron,
his
former
divorce
attorney.”

“There
is
no
greater
evidence
of
Musk’s
status
as
a
transaction-specific
controller
than
the
Board’s
posture
toward
Musk
during
the
process
that
led
to
the
Grant,”
McCormick
wrote.

“Put
simply,
neither
the
Compensation
Committee
nor
the
Board
acted
in
the
best
interests
of
the
Company
when
negotiating
Musk’s
compensation
plan.
In
fact,
there
is
barely
any
evidence
of
negotiations
at
all,”
she
wrote.

“Rather
than
negotiate
against
Musk
with
the
mindset
of
a
third
party,
the
Compensation
Committee
worked
alongside
him,
almost
as
an
advisory
body.”

Musk
did
not
immediately
respond
to
a
request
for
comment.

But
in
a
tweet
late
Tuesday
afternoon,
Musk
wrote,
“Never
incorporate
your
company
in
the
state
of
Delaware.”

Tornetta’s
lawyer,
Greg
Varallo,
in
a
statement
said,
“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.”

“The
Court’s
hard
work
will
redound
directly
to
the
benefit
of
Tesla
investors,
who
will
see
the
dilution
from
this
gargantuan
pay
package
erased,”
Varallo
said.

McCormick’s
ruling
hinged
on
a
finding
that
Musk,
rather
than
its
board
of
directors
and
shareholders,
controlled
Tesla,
at
least
when
it
came
to
the
question
of
setting
his
compensation.

The
judge
wrote:
“In
addition
to
his
21.9%
equity
stake,
Musk
was
the
paradigmatic
‘Superstar
CEO,’
who
held
some
of
the
most
influential
corporate
positions
(CEO,
Chair,
and
founder),
enjoyed
thick
ties
with
the
directors
tasked
with
negotiating
on
behalf
of
Tesla,
and
dominated
the
process
that
led
to
board
approval
of
his
compensation
plan.”

Tesla
and
Musk’s
attorneys,
the
court
decided,
“were
unable
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.”

Earlier
this
month,
Musk
began
angling
for
25%
of

voting

control
over
Tesla.

He
currently
owns
about
13%
of
the
company’s
stock
outright.

“I
am
uncomfortable
growing
Tesla
to
be
a
leader
in
AI
&
robotics
without
having
~25%
voting
control.
Enough
to
be
influential,
but
not
so
much
that
I
can’t
be
overturned,”
he
wrote
in
a
post
on
X,
the
social
media
site
formerly
known
as
Twitter.

Musk
owns
X
and
runs
it,
having
purchased
it
in
late
2022



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