Elon Musk’s $55 billion pay package has been voided by Delaware Chancery Court Judge Kathaleen McCormick. In a decision issued on Tuesday, Judge McCormick cited issues with the fairness and transparency of the agreement.
Musk’s compensation package was approved by Tesla shareholders in 2018, with the plan tied to ambitious milestones aimed at significantly increasing Tesla’s market valuation. However, questions about the fairness of the pay package, particularly regarding the independence of the board members who approved it and the transparency of the compensation plan’s criteria, led to legal scrutiny and ultimately the judge’s decision to void the package.
Judge McCormick’s decision points to deficiencies in the process by which Musk’s compensation was approved, specifically criticizing the portrayal of certain directors as independent and the omission of details about the process from proxy statements, namely that Musk himself came up with and proposed the package to the board.
For their part, Tesla’s board defended the package as a necessary measure to retain Musk’s leadership, arguing that his vision and innovation were crucial for Tesla’s future success. However, the plaintiff’s legal team challenged this notion, arguing that the compensation plan was excessively generous and lacked proper shareholder oversight.
The plaintiff also raised concerns about Musk’s ability to meet the plan’s milestones, suggesting that the goals were more achievable than presented to shareholders.
Tesla and Musk will now decide on their next steps, potentially including an appeal to the Delaware Supreme Court, but as the decision stands, it serves as a new precedent for scrutinizing executive pay packages and the processes by which they are ratified.
The decision, which emerged from a lawsuit filed by Tesla shareholder Richard Tornetta, has caused Tesla’s stock to dip nearly 5% in after-hours trading.
You can read the full decision below.