This is Elon Musk’s world. One day he is in glory, marking a milestone as an innovative scientist with brain chips, and the next he falls into hell after receiving a judicial blow for being a cheater.
Judge Kathaleen McCormick of the Chancery Court in Delware ordered that the $56 billion salary package that Elon Musk received in 2018 in compensation to continue managing Tesla, the electric vehicle company that founded, after a shareholder denounced that it was an excessive amount.
The judge has agreed with him by determining that this compensation was not fair and that neither Musk nor Tesla have shown that it was justified.
What goes up comes down. This amount of money made him the richest man in the world and, if the order is executed, it will be a bite in his assets that will make him lose that position of privilege. This was the largest compensation ever paid in the corporate world in public markets. Unparalleled in history.
The judge argues that this record bonus was “an unbearable sum”, which was not deserved considering the company’s shareholders and emphasizes that the board of directors “failed to maintain that the compensation plan was fair.” The decision comes more than five years since the head of the vehicle manufacturing company won the award.
Tesla’s board will have to start over and come up with a new proposal. Shareholders who challenged the compensation plan must work with Musk’s legal team to implement the decision.
According to the judge, the board members seemed to be indebted to their leader and CEO in the negotiations, under the effect of the promise to share in the company’s enormous growth. “Swept away by backwards rhetoric or perhaps clouded by Musk’s superstar appeal, the board never addressed the $55.8 billion question: Was it the plan necessary for Tesla to retain Musk and achieve its goals? objectives?”, writes the judge in her 201-page resolution.
In his reasoning, he indicates that Richard Tornetta, the shareholder who signed the lawsuit, demonstrated that Musk “controlled Tesla” and that the process that led to his compensation was “deeply flawed.” The compensation plan tied certain tranches of stock options for Musk to Tesla’s market capitalization and certain earnings targets. The founder is the largest shareholder of the company. He recently owned 13% of the total.
“Musk had extensive ties to the people in charge of negotiating on behalf of Tesla,” which included those responsible for management, “who were those who were indebted” to the boss. Among these he cites General Counsel Tood Maron, who had been the lawyer who handled his divorce. “The lawsuit has the right to rescission,” the judge concluded.
“Never incorporate your company into the state of Delaware,” the businessman replied on X, the social network he has owned since 2022, in his reaction to the ruling.
“This is a good day for good guys,” said Greg Varallo, Tornetta’s lawyer, who signed the lawsuit in 2018.
“The incredible size of the largest compensation plan ever known appears to have been calibrated to support Musk in achieving what he believed would help achieve a good future for humanity,” the judge insists.
In his November 2022 statement, the billionaire stated that this money would be used to finance interplanetary trips. “It’s the way to get people to Mars, so Tesla can help achieve this,” he added.
The company’s directors declared that this payment made it possible to ensure that one of the main entrepreneurs in the world continued to pay attention to this firm. Antonio Gracias, director of the automaker from 2007 to 2021, called the plan a “great deal for shareholders” because, he reasoned, it led to the company’s extraordinary success.
Tornetta, on the other hand, stated that the board of directors never told shareholders that the objective was anything linked to the growth of the company. The lawsuit argued that a lower plan should be agreed upon or, if not accepted, another executive director should be found, or that Musk would dedicate himself full time to Tesla and not get involved in other projects such as Space Twitter) and more.
This opens the way to a new negotiation. Musk already commented on his social network this January that he felt uncomfortable leading Tesla unless he had 25% of the votes.
