In a significant legal setback for Tesla and Elon Musk, a Delaware judge on Monday upheld her January ruling rejecting Musk’s $55.8 billion compensation package. The court found the deal to be excessive and unfair to shareholders, dismissing Tesla’s attempt to ratify it through a June shareholder vote.
Judge Denies Tesla’s Attempt to Reinstate Deal
Chancellor Kathaleen McCormick of Delaware’s Court of Chancery issued the decision, stating that the shareholder vote could not override her earlier ruling. She emphasized that the package, one of the largest in corporate history, failed to align with the interests of Tesla’s shareholders.
In her January ruling, McCormick criticized the compensation package, describing it as disproportionately large and lacking adequate safeguards to protect shareholder value.
What Was Musk’s Pay Deal?
The $55.8 billion compensation package was designed in 2018 as a performance-based deal tied to Tesla’s market capitalization and operational milestones. Under the agreement, Musk could unlock stock options worth billions as Tesla achieved specific targets.
However, critics argued that the package allowed Musk to benefit disproportionately, raising concerns about fairness and corporate governance.
Shareholder Concerns
The court’s ruling reflects ongoing tension between Tesla’s leadership and its shareholders. Several shareholders had voiced opposition to the pay deal, arguing that it rewarded Musk excessively while sidestepping traditional checks and balances.
Tesla’s attempt to validate the package through a June vote was seen as a last-ditch effort to salvage the deal. However, the court deemed this insufficient to overturn the earlier ruling.
Implications for Tesla and Musk
This decision could prompt Tesla to revisit its executive compensation practices and reevaluate its approach to aligning leadership incentives with shareholder interests.
For Elon Musk, the ruling represents a rare legal defeat amid his high-profile ventures, which include overseeing Tesla, SpaceX, and his recently acquired social media platform, X.
