A U.S. judge has upheld her ruling to invalidate Elon Musk’s $55.8 billion compensation package at Tesla, denying the company’s attempt to reinstate the deal through a shareholder vote.
In a court filing Monday, Chancellor Kathaleen McCormick of Delaware’s Court of Chancery rejected Tesla’s effort to ratify the pay package during a June shareholder vote. She stated that her January decision, which found the package excessive and unfair to shareholders, remained binding.
McCormick cited “material misstatements” in documents presented to shareholders about the implications of their vote as a key reason for her decision.
“The motion to revise is denied,” McCormick wrote. “The defense’s creative ratification argument defies multiple strands of established law.”
Tesla’s Response and Appeal
In a statement shared on Musk’s social media platform, X, Tesla announced plans to appeal the decision. Musk also weighed in, arguing, “Shareholders should control company votes, not judges.”
The court further awarded $345 million in attorney fees to the plaintiff’s legal team, far less than the $5.6 billion initially requested. McCormick acknowledged the lawyers’ calculations complied with Delaware law, which ties fees to a percentage of benefits achieved, but deemed the larger sum an “excessive windfall.”
Background and Controversy
The controversial compensation package was originally approved by Tesla shareholders in March 2018. It was structured to reward Musk for Tesla’s dramatic growth, tying payouts to ambitious performance milestones.
However, Tesla shareholder Richard Tornetta filed a lawsuit claiming the plan was excessively generous and that Musk had dictated its terms to a board lacking independence. Tornetta accused Musk of “unjustified enrichment” and sought the plan’s annulment, which ultimately contributed to Musk becoming the world’s wealthiest person.
During a 2022 trial, Musk defended the deal, asserting that Tesla’s investors are among the “most sophisticated in the world” and fully capable of scrutinizing his management. He argued that Tesla’s turnaround from an industry outlier to a leader hinged on the success of its Model 3.
Musk denied influencing the board’s decision, despite several board members being close allies.
Implications for Delaware’s Corporate Dominance
The Delaware Court of Chancery, a key jurisdiction for U.S. corporate law, has handled numerous high-profile cases involving Fortune 500 companies. Following the ruling, Musk reposted comments from users on X suggesting companies reconsider their registration in Delaware, hinting at his discontent with the state’s judicial process.
The case highlights ongoing tensions over corporate governance and executive pay, with significant implications for shareholder rights and legal accountability.
