Elon Musk, the world’s richest person, had his $55.8 billion Tesla pay package declared void by a Delaware judge who criticized it as an unfair sum for shareholders. Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery ruled Tuesday that Tesla’s board of directors failed to demonstrate the fairness of the CEO’s pay package to shareholders. The lawsuit was filed by a shareholder who claimed that Musk had undue influence on the Tesla board. Musk and Tesla argued that ensuring Musk’s leadership was critical to the company’s future and that the deal made concessions to shareholders. The judge expressed that Musk effectively controlled Tesla during this transaction.
What will the Tesla board do next? According to Wedbush Securities analyst Daniel Ives, the board members are facing a challenging situation and must negotiate a new pay package that garners approval from both shareholders and Musk. Alternatively, they could appeal the judge’s decision or consider changing Tesla’s place of incorporation.
How did Elon Musk react to the Delaware ruling? Musk took to social media to ask his followers to vote on whether Tesla should incorporate in Texas, which is a more business-friendly state where it has its corporate offices and a factory. Case Western Reserve University law professor Anat Alon-Beck noted that Musk failed to demonstrate that the pay package was inherently fair to shareholders due to his disregard for the fundamentals of the fairness doctrine and corporate rules and procedures.
How much Tesla stock does Elon Musk own? Even without the stock from the voided pay package, Musk owns about 411 million Tesla shares, worth approximately $78 billion.
The court decision has been met with criticism, with some labeling Musk’s pay package as “absurd” and pointing out the disparity between executive compensation and that of rank-and-file employees. The judge described Musk’s pay package as the largest ever observed in public markets, significantly surpassing compensation plans of his peers. Bart Naylor, financial policy advocate for Public Citizen, condemned Musk’s 2018 pay package as an insult to the true value of a senior manager in the context of already inflated CEO compensation.
