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A Delaware judge has once again struck down Elon Musk’s substantial Tesla compensation package, which was previously estimated at USD$56 billion.
On Monday, Chancellor Kathaleen St. Jude McCormick denied a motion from Musk’s legal team to overturn her January ruling that had annulled the pay arrangement. The judge determined that Musk had control over Tesla’s board and had orchestrated the excessive pay package through dubious negotiations.
The legal representatives for a Tesla shareholder who opposed the compensation package argued that the shareholders who approved the 10-year plan in 2018 were misled and did not receive complete information.
In their defense, members of Tesla’s board claimed that the shareholders who ratified the pay plan again in June had done so with full disclosures, thereby addressing the issues highlighted in McCormick’s earlier ruling. They contended that Musk warranted the pay package due to his role in increasing Tesla’s market value significantly.
However, McCormick dismissed this argument. In her comprehensive 103-page opinion, she stated that under Delaware law, Tesla’s attorneys lacked sufficient grounds to challenge her January ruling “based on evidence they created after trial.”
Next Steps for Musk and Tesla
Following the ruling, Tesla announced on X, a social media platform owned by Musk, that it intends to appeal. The appeal will be directed to the Delaware Supreme Court, which is the only appellate court available for Tesla to pursue. Experts anticipate that a decision may be reached within a year.
Tesla argued that “the ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners — the shareholders.”
Musk also expressed his discontent on X, labeling McCormick as “a radical far left activist cosplaying as a judge.”
Expert Opinions on the Case
Legal experts generally view McCormick’s ruling as well-founded and compliant with legal standards. Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, said that McCormick was justified in her ruling. He noted that after Tesla lost its case in the initial trial, it improperly created new evidence by soliciting shareholders to ratify the pay package again.
Elson emphasised that allowing such a claim would alter Delaware’s laws regarding conflicts of interest due to Musk’s close relationship with Tesla’s board.
He stated, “Delaware protects investors — that’s what she did,” adding that being a “superstar CEO” does not exempt one from legal scrutiny.
He expressed concern that if exceptions were made for certain individuals, investors might hesitate to invest in Delaware companies. Elson believes it is likely that the court will uphold McCormick’s decision.
Meanwhile, other experts indicate that this is unlikely. State law rulings are typically reserved for state courts. Brian Dunn, program director for the Institute of Compensation Studies at Cornell University, mentioned that Tesla must remain within Delaware courts regarding this compensation issue.
Impact of Tesla’s Move to Texas
While Tesla could attempt to restructure the pay package and seek approval in Texas—where judges may be more favourable—Dunn warned that another shareholder might contest any excessive award there as well.
“If they just want to turn around and deliver him $56 billion, I can’t believe somebody wouldn’t want to litigate it,” Dunn stated. “It’s an unconscionable amount of money.”
Morgan Stanley analyst Adam Jonas noted that Tesla stock is currently trading at 15 times the exercise price of stock options in the existing package. According to Jonas, Tesla’s share price has doubled over the last six months. As of Monday’s closing stock price, Musk’s current compensation package is valued at approximately USD$101.4 billion.
Additionally, Musk has requested a new pay package that would grant him 25% of Tesla’s voting shares. He has indicated discomfort with advancing into artificial intelligence without this level of control. Currently, he owns about 13% of Tesla’s outstanding shares.