Judge Orders Elon Musk to Forfeit $55B Tesla Pay

1 février 2024

In a landmark decision by a Delaware court, Tesla CEO Elon Musk has been directed to relinquish a compensation package granted by the company's board of directors, potentially valued at over $55 billion (£43.4 billion). The ruling stems from a shareholder lawsuit initiated five years ago, which alleged breaches of duty by Musk and the board, resulting in the misappropriation of corporate assets and unjust enrichment for the tech mogul.

The legal battle centered around claims that Musk had unduly influenced the pay package's terms, engaging in purportedly deceptive negotiations with non-independent directors. Plaintiff attorneys argued that the compensation arrangement was not fairly negotiated, asserting that Musk had an undue influence on the process.

Defense lawyers countered by asserting that the compensation package underwent a fair negotiation process facilitated by an independent committee of directors. They emphasized the inclusion of ambitious performance milestones and highlighted the approval through a shareholder vote, which they contended was not obligatory.

Elon Musk, the charismatic entrepreneur, took to his social media platform, X, to share his reaction to the court ruling, advising his followers, "Never incorporate your company in the state of Delaware." Subsequently, he conducted a poll on X, inquiring whether Tesla should consider incorporating in Texas, where the company has a substantial physical presence.

During the trial in November 2022, Musk vehemently denied any direct involvement in shaping the compensation package or attending meetings where its details were discussed. However, the presiding judge ruled that Musk, as a controlling shareholder with a potential conflict of interest, should be held to a more rigorous standard.

Chancellor Kathaleen St Jude McCormick, who presided over the case, criticized the flawed process leading to the approval of Musk's compensation plan. She underscored Musk's extensive ties to key negotiators, citing longstanding relationships with compensation committee chairman Ira Ehrenpreis and committee member Antonio Gracias. McCormick also highlighted the involvement of general counsel Todd Maron, Musk's former divorce attorney, in the negotiation process.

The judge concluded that the only appropriate remedy was the rescission of Musk's compensation package. In her written decision, Chancellor McCormick stated, "In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall." This legal development has significant implications for corporate governance and executive compensation practices within the tech industry.