By Mariko OiBusiness reporter30 January 2024Updated 55 minutes agoImage source, Getty ImagesA judge in Delaware has invalidated a $55.8bn (£44bn) pay agreement granted to Elon Musk in 2018 by Tesla, maintaining that it was an excessive payment. Judge Kathaleen McCormick referred to the compensation as “an unfathomable sum” that was unfair to shareholders and criticized the flawed approval process. She ruled that the contract should be revoked. Musk’s net worth was estimated between $198bn (£162bn) and $220bn (£180bn) by Bloomberg and Forbes in November 2023, following the pay deal that made him the world’s richest person. The pay agreement was tied to performance targets including Tesla’s share price and profitability, as Musk does not receive a salary. However, Tesla shareholder Richard Tornetta initiated legal action to rescind the award, claiming that Musk had been overcompensated. Following a week-long trial in November 2022, Judge McCormick released a 201-page ruling on Tuesday, stating that Tesla directors had been influenced by Musk’s “superstar appeal” and that Musk had close ties with the Tesla officials involved in negotiating the pay award. Tesla shareholder Mr. Tornetta’s attorney, Greg Varallo, hailed the ruling as a victory, whereas Musk suggested incorporating Tesla in Nevada or Texas, and indicated his preference for shareholders to decide on matters. The judge’s ruling can be appealed to the Delaware Supreme Court. Tesla shares declined by around 2.5% in extended New York trade, having lost over 20% of their value this year. In addition to being the CEO and a major shareholder of Tesla, Musk also owns several other ventures including the social media platform X, the rocket company SpaceX, and the brain chip firm Neuralink. Musk commented that he wants a bigger stake in Tesla despite owning about 13% of the company. In 2018, when Tesla proposed Musk’s original 10-year pay package, it drew widespread public attention as several shareholder advisory groups suggested voting against it, deeming it excessively generous. Prof. Brian Quinn from Boston College Law School stated that it was hard to justify such a transaction given Musk’s influence over the board, even though he is not the majority owner. Musk expressed concerns about Tesla’s investments in artificial intelligence, indicating that the current shareholder structure leaves the company vulnerable to a takeover and that he wants more control over its direction.
