The ruling by Chancellor Kathaleen St. Jude McCormick comes after a shareholder lawsuit targeted Tesla CEO Musk and directors of the company, accusing them of breaching their duties and resulting in a waste of corporate assets and unjust enrichment for Musk.
McCormick determined that because Musk was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard. She cited Musk’s extensive ties with the persons tasked with negotiating on Tesla’s behalf, including compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias. She also noted the involvement of general counsel Todd Maron, who was Musk’s former divorce attorney.
As a result, she ruled that the only suitable remedy was for Musk’s compensation package to be rescinded. The plaintiff’s attorney praised the decision to reverse the “absurdly outsized” Musk pay package.
The compensation package included stock options that would be awarded to Musk if Tesla hit certain market capitalization and operational milestones, potentially amounting to more than $55 billion. Tesla has achieved all twelve market capitalization milestones and eleven operational milestones, providing Musk nearly $28 billion in stock option gains.
The defense argued that the compensation package was a “high-risk, high-reward” deal that benefitted not just Musk, but Tesla shareholders, as the value of the company climbed from $53 billion to more than $800 billion.
