Judge voids Elon Musk’s ‘unfathomable’ $75 billion Tesla pay package


WILMINGTON – A Delaware judge on Jan 30 ruled that Elon Musk’s record-breaking US$56 billion (S$75 billion) Tesla pay package could be tossed, calling the compensation “an unfathomable sum” that was not fair to shareholders, according to a court filing.

Shares of Tesla dropped 3.7 per cent in extended trade.

The decision means that more than five years after the electric car maker’s co-founder was granted the largest executive compensation plan in history, Tesla’s board will have to start over and come up with a new proposal.

The ruling leaves the future of Mr Musk’s fortune in limbo. Without the pay package, his net worth would drop to US$154.3 billion, making him the third-richest person in the world after spending most of the past couple of years as No. 1, according to the Bloomberg Billionaires Index.

The judge found it was negotiated by directors who seemed beholden to their headline-making chief executive and the promise of allowing him to share in the company’s enormous growth.

“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the US$55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?“ wrote Kathaleen McCormick of Delaware’s Court of Chancery.

Judge McCormick’s opinion directed the Tesla shareholder who challenged the pay plan to work with Elon Musk’s legal team on an order implementing the decision.

“Never incorporate your company in the state of Delaware,” Mr Musk said in a post on X, the social media platform he bought in 2022. Originally named Twitter, Musk moved its state of incorporation to Nevada from Delaware after his purchase.

“Good day for the good guys,” said an email from Greg Varallo, an attorney for the Tesla shareholder Richard Tornetta who brought the lawsuit in 2018.

The ruling can be appealed to the Delaware Supreme Court.

The decision means that more than five years after the electric car maker’s co-founder was granted the largest executive compensation plan in history, Tesla’s board will have to start over and come up with a new proposal.

The ruling leaves the future of Musk’s fortune in limbo. Worth some $51.1 billion, the options were one of his most valuable assets. Without them his net worth would drop to $154.3 billion, making him the third-richest person in the world after spending most of the past couple of years as No. 1, according to the Bloomberg Billionaires Index.

“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” wrote Judge McCormick in her 201-page opinion.

Mr Musk testified during the compensation trial in November 2022 that the money would be used to finance interplanetary travel.

“It’s a way to get humanity to Mars,” he testified. “So Tesla can assist in potentially achieving that.”

Tesla’s agreement with Mr Musk contributes a significant part of his fortune, which is one of the world’s largest.

Tesla directors argued during a week-long trial that the company was paying to ensure one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the electric-vehicle maker. Antonio Gracias, a Tesla director from 2007 to 2021, called the package “a great deal for shareholders” because he said it led to the company’s extraordinary success.

Mr Tornetta’s lawyers argued the Tesla board never told shareholders that the goals were easier to achieve than the company was acknowledging and that internal projections showed Mr Musk was quickly going to qualify for large portions of the pay package.

The plaintiff’s legal team also argued the board had a duty to offer a smaller pay package or look for another CEO and that they should have required Mr Musk to work full-time at Tesla instead of allowing him to focus on side projects, like SpaceX and X.



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