Tesla gave Elon Musk a $56 billion compensation package in 2018, which helped catapult him to the top of the global rankings of the wealthiest people. A Delaware judge has now declared the CEO’s remuneration an “unfathomable sum” that is unjust to the company’s shareholders, therefore invalidating the agreement between the two parties. The Delaware Court of Chancery has made its ruling on Richard Tornetta’s complaint, as was first seen and published by Chancery Daily on Threads. By accepting a deal that unfairly rewards its CEO, the Tesla shareholder accused the company of violating its fiduciary duties.
With Musk owning 21.9 percent of the automaker at the time the pay package was negotiated, Judge Kathaleen McCormick noted in her decision that Musk “enjoyed thick ties” with the directors who were in charge of negotiating his pay package on behalf of Tesla, meaning there “was no meaningful negotiation over any of the terms of the plan.” The judge further noted that Musk had “every incentive to push Tesla to levels of transformative growth,” as he stood to gain $10 billion for every $50 billion in market capitalization increase.
“Swept up by the rhetoric of ‘all upside,’ or perhaps starry-eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” The judge stated this in the court record. According to The Washington Post, she declared that Tornetta had the right to a “rescission” and directed Tesla and its stockholders to follow her judgment and void the agreement. Musk’s team may still challenge her decision, though.
Since his compensation plan was approved, Musk has sold part of his Tesla stock to help finance his acquisition of Twitter, and now X. He now owns around 13 percent of Tesla, but he recently stated that he needs to have a 25 percent stake in the business before he feels comfortable seeing it develop into a robotics and AI leader.
The court’s ruling prompted Musk to tweet, “Never incorporate your company in the state of Delaware.” In addition, he put up a survey asking his followers if Tesla ought to relocate its corporate headquarters from California to Texas.