The ruling ruled that his salary, six times the combined salary of the two hundred highest-paid executives in 2021, was improperly set.
A Delaware judge has ruled in favor of the Tesla investors who challenged chief executive Elon Musk’s $56bn pay package as excessive. The judge found that Musk’s compensation was inappropriately set by the electric-vehicle maker’s board and struck down the package. If the decision survives any potential appeal, the Tesla board will have to come up with a new compensation package for Musk.
“Never incorporate your business in the state of Delaware,” Musk replied on Twitter/X.
Tesla shareholder Richard Tornetta filed a lawsuit five years ago, accusing Musk of improperly dictating negotiations over the pay package and claiming the board acted independently. The court’s opinion ordered Tornetta to work with Musk’s legal team on an order implementing the judge’s ruling. The ruling can be appealed to the Delaware Supreme Court.
Tesla’s deal with Musk is through the largest pay deal ever made for an executive and contributes a significant portion of his fortune, which is one of the largest in the world. Musk testified at the payment trial in November 2022 that the cash would be used. to fund interplanetary travel.
“It’s a way to get humanity to Mars,” he testified. “So Tesla has the ability to make that happen. “
Tesla executives argued a week-long test that the company was paying to make sure one of the world’s fastest-growing marketers continued to devote its attention to the electric vehicle maker. Antonio Gracias, Tesla’s chief executive from 2007 to 2021, called the package “a smart deal for shareholders” because he said it contributed to the company’s normal success.
The ruling said the defense failed to identify the “historically unprecedented payment plan” required to ensure Musk remains loyal to Tesla. He urged the parties to consult on a final order to give effect to his decision.
“Swept up in the ‘everything is on the rise’ rhetoric, or dazzled by Musk’s allure of the superstar, the board never asked the $55. 8 billion question: Was the plan even mandatory for Tesla to remain Musk and meet its goals?Justice Kathaleen St J McCormick wrote in her decision.
Tornetta’s lawyers argued that Tesla’s board of directors never told shareholders that the goals were easier to achieve than the company claimed and that internal projections showed Elon Musk would temporarily qualify for a large portion of the pay package.
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The plaintiff’s legal team also argued that the board had a duty to offer less pay or less pay to another top executive and that they required Musk to work full time at Tesla rather than allowing him to focus on other projects. , he bought the social media company Twitter, which he renamed X, and founded several startups, including the brain implant company Neuralink, the tunneling company Boring, and SpaceX, a rocket company.
The program grants inventory features that allow Musk to acquire Tesla shares at deeply discounted prices as developing financial and operational goals are met. You will have to keep the purchased shares for five years. Musk has qualified for all 12 tranches or functionality goals of the plan. He was not guaranteed a salary.
The resolution will highlight the upcoming circular of payment negotiations between Tesla and Musk. Tesla’s price soared to briefly reach $1 trillion in 2021, up from $50 billion when the package was negotiated. The resolution also comes after Musk reiterated his preference for 25% of Tesla. Musk sold a giant portion of his Tesla shares to buy Twitter, but said in an article in X in January that he wasn’t comfortable running Tesla unless he had 25% of the vote. The billionaire owned about 13% of the company at the time.
Amit Batish at Equilar, an executive pay research firm, estimated in 2022 that Musk’s package was around six times larger than the combined pay of the 200 highest-paid executives in 2021. The structure of the 10-year pay package, agreed to in 2018, entitled Musk to 12 tranches of stock options if Tesla met certain performance targets, which it has.
In July, Tesla’s administrators agreed to return $735 million to the company to settle shareholder allegations made in a separate lawsuit filed in 2020 that they paid themselves too much. The lawsuit questioned the roles granted to the directors as of June 2017.