A Delaware judge’s decision to invalidate Elon Musk’s $56 billion Tesla (TSLA) compensation plan is a significant threat to the wealth of the world’s richest man and could have far-reaching implications for CEO compensation practices across the United States. Cornell University visiting lecturer Brian Dunn described it as a “big deal,” highlighting it as the first instance of a board’s compensation decision being overturned. Delaware Chancellor Kathaleen McCormick’s ruling is seen as a “wake-up call” for all directors, emphasizing the necessity of impartial negotiations regarding CEO remuneration.
This ruling jeopardizes Elon Musk’s wealth, as the judge found that Tesla’s directors violated their fiduciary duty by awarding Musk the largest compensation package ever given to a public company executive. The decision cited “extensive ties” among the individuals negotiating the pay package and the lack of public disclosure about Musk’s relationships with those who approved the deal. Chancellor McCormick stated that neither the Compensation Committee nor the Board acted in the company’s best interests during the negotiation of Musk’s compensation plan. The ruling is expected to have implications for other highly paid executives and directors, leading to a reassessment of executive compensation practices.
Delaware Chancellor Kathaleen McCormick has played a pivotal role in the $44 billion court battle that has pitted Elon Musk against Twitter Inc. (Eric Crossan via AP)The shareholders’ attorney, Greg Varallo, pointed out that Musk’s compensation plan in 2018 was approximately 33 times larger than any previous pay package in history. This resulted in a significant distortion of compensation data, making it crucial to reevaluate executive compensation practices. Musk’s compensation plan was designed to pay out in 12 tranches of Tesla stock options contingent on the company achieving specific market cap increases and meeting revenue or adjusted EBITDA targets. Despite the court’s decision nullifying the compensation plan, at the time of the ruling, Musk had not exercised or sought distribution of those shares.
Tesla, Inc. stock shares plummeted following a fourth quarter earnings report miss and warnings of a lower production growth rate in 2024. The rescinded compensation arrangement leaves Musk without access to the $55.8 billion. (zz/STRF/STAR MAX/IPx)The board of Tesla has the option to appeal the decision or develop a new compensation plan that aligns with the court’s ruling. Dan Ives, an analyst at Wedbush, stated that the reaction of Tesla’s board will be closely monitored by the investment community. If the board decides to appeal, the Delaware Supreme Court is expected to review the characterization of Musk as a controlling shareholder in the compensation transaction. The issue of defining a controlling shareholder is complex and will be a significant aspect of the court’s review, explained University of Virginia Law professor Michal Barzuza.
Tesla, Inc. stock shares plummeted following a fourth quarter earnings report miss and warnings of a lower production growth rate in 2024. The rescinded compensation arrangement leaves Musk without access to the $55.8 billion. (zz/STRF/STAR MAX/IPx)
Tesla, Inc. stock shares plummeted following a fourth quarter earnings report miss and warnings of a lower production growth rate in 2024. The rescinded compensation arrangement leaves Musk without access to the $55.8 billion. (zz/STRF/STAR MAX/IPx)
Delaware Chancellor Kathaleen McCormick has played a pivotal role in the $44 billion court battle that has pitted Elon Musk against Twitter Inc. (Eric Crossan via AP)
Delaware Chancellor Kathaleen McCormick has played a pivotal role in the $44 billion court battle that has pitted Elon Musk against Twitter Inc. (Eric Crossan via AP)
