A Delaware court has once again rejected Tesla CEO Elon Musk’s record-breaking $56 billion pay package. Despite being approved by shareholders in 2018, the court ruled the compensation deal was unfair and overly influenced by Musk himself.
Judge Kathaleen McCormick, who had initially ruled against the pay deal in January, stood by her decision. She argued that Tesla’s board members were not independent enough and that the process leading to the approval of the package lacked objectivity.
McCormick described the pay award as the largest ever for a publicly listed company’s CEO, stating that Tesla failed to prove it was justifiable.
While 75% of Tesla shareholders voted in favor of the pay package, Judge McCormick ruled that the vote could not ratify the deal under the circumstances. She criticized Tesla’s legal defense as “creative” but ultimately unconvincing.
Reacting to the ruling, Musk took to X (formerly Twitter), writing, “Shareholders should control company votes, not judges.”
Tesla announced plans to appeal, calling the decision “wrong” and arguing it undermines shareholder rights. In a statement, the company said, “This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners—the shareholders.”
The court also ruled that the Tesla shareholder who brought the lawsuit would receive $345 million in legal fees but denied the plaintiff’s request for $5.6 billion in Tesla shares.
Corporate governance experts applauded the ruling, emphasizing the importance of conflict of interest laws. Charles Elson of the University of Delaware’s Weinberg Center for Corporate Governance called the decision “well-reasoned,” highlighting concerns over Tesla’s board structure and the process behind the deal.
“You had a board that wasn’t independent, a process dominated by the CEO, and a package far beyond reasonable bounds,” Elson noted.
With Tesla recently moving its legal base to Texas, some speculate the company may attempt to draft a similar compensation package under more favorable state laws. However, the Delaware ruling is a stark reminder of the scrutiny surrounding executive pay and corporate governance.
As Tesla and Elon Musk prepare for an appeal, the decision underscores ongoing concerns about corporate accountability and shareholder rights. The case also highlights the complexities of balancing innovation-driven leadership with fair compensation practices in the corporate world.
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