A Delaware court has ruled against reinstating Tesla CEO Elon Musk’s record-breaking $56 billion pay package, despite its approval by shareholders and directors in 2018. The decision follows months of legal challenges and upholds an earlier ruling by Judge Kathaleen McCormick.
In her January ruling, Judge McCormick argued that Tesla board members were unduly influenced by Musk when approving the unprecedented compensation deal, which would have been the largest ever awarded to the CEO of a listed company.
Responding to the ruling Musk wrote on X: “[S]hareholders should control company votes, not judges.”
Tesla announced plans to appeal, calling the ruling “wrong” and claiming it undermines shareholder rights. “This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders,” the company posted on X.
Judge McCormick dismissed Tesla’s defense that the pay package was justified, describing the company’s legal arguments as “creative” but unconvincing. She noted that while 75% of shareholders voted in favour of the package in June 2018, this did not justify the compensation’s size given the circumstances. “Even if a stockholder vote could have a ratifying effect, it could not do so here,” she wrote in her opinion.
In addition to rejecting Musk’s pay package, the court ruled that the Tesla shareholder who filed the case would receive $345m in legal fees but denied their request for $5.6bn in Tesla shares.
Observers noted that a ruling in favour of Musk and Tesla could have weakened Delaware’s conflict of interest laws. Charles Elson, a governance expert at the University of Delaware, praised the decision as “well-reasoned.” He highlighted issues including the board’s lack of independence, a process dominated by Musk, and an excessive compensation package. “It’s quite a combo,” Elson said. Elson also suggested Tesla might attempt to restructure a similar pay package in Texas, where the company relocated its legal base earlier this year.
