A Delaware judge has upheld her decision to block Elon Musk’s controversial $55.8 billion compensation package, ruling against an attempt by Tesla to have shareholders ratify the deal through a vote. In a court ruling on Monday, Chancellor Kathaleen McCormick of Delaware’s Court of Chancery rejected the bid to restore the massive pay plan, which had been struck down earlier this year for being excessive and unfair to shareholders.
McCormick’s decision stems from a June attempt by Tesla to ratify the deal through a shareholder vote, which she deemed invalid. She pointed out significant flaws in Tesla’s submission to shareholders, including “material misstatements” about the effect their vote would have, thus reaffirming her previous judgment that the pay plan was inappropriate.
“The motion to revise is denied,” McCormick stated, adding that the arguments put forth by Tesla’s defense team were based on unprecedented theories that contradicted established legal principles.
In a public response, Tesla announced plans to appeal the ruling, with Elon Musk voicing his objections on X (formerly Twitter). “Shareholders should control company votes, not judges,” Musk wrote in a post.
The court also awarded $345 million in attorney fees to the plaintiff, Tesla shareholder Richard Tornetta, although this was far lower than the $5.6 billion his legal team had originally requested. While acknowledging that the fee calculation method followed Delaware law, McCormick argued that such a large fee would constitute an excessive windfall.
The pay package, originally approved by Tesla’s board in March 2018, was designed to reward Musk for the company’s remarkable growth. However, Tornetta’s lawsuit argued that the plan was flawed, alleging that Musk had undue influence over the board, which he claimed lacked sufficient independence. Tornetta accused Musk of “unjustified enrichment” and sought to annul the pay package, which played a role in making Musk the world’s richest person.
During the 2022 trial, Musk defended the compensation deal, stating that Tesla’s investors were among the most sophisticated in the world and able to monitor his management. He emphasized that the company’s turnaround, largely due to the success of the Model 3, was the key driver behind Tesla’s growth and his compensation. Musk also denied playing a role in crafting the terms of his pay package, despite the fact that some of the board members who approved it were his close friends.
The Delaware Court of Chancery, a key institution in American corporate law, has been instrumental in overseeing legal matters involving major U.S. corporations. With Tesla incorporated in Delaware, this decision highlights the state’s influential role in corporate governance.
Musk, who has been vocal about his dissatisfaction with the ruling, shared on X that he was supporting calls for companies to consider leaving Delaware, a jurisdiction where roughly two-thirds of America’s Fortune 500 companies are registered.
Gathered by: Onoro Promise Edesiri