A US judge has upheld her decision to reject Elon Musk’s $55.8 billion compensation package at Tesla, denying an attempt to restore the deal through a shareholder vote. Chancellor Kathaleen McCormick of Delaware’s Court of Chancery ruled on Monday that Tesla’s attempt to ratify Musk’s compensation plan through a vote in June could not overturn her earlier January decision, which deemed the package excessive and unfair to shareholders.
In her ruling, McCormick pointed out several flaws in Tesla’s ratification attempt, including “material misstatements” in the documents provided to shareholders regarding the impact of their vote. She stated, “The motion to revise is denied” and added that the defense’s arguments were inconsistent with established legal principles.
Tesla has indicated its intention to appeal the decision. In a post on Musk’s X (formerly Twitter) account, the company expressed its discontent, asserting that “shareholders should control company votes, not judges.” Musk, in a separate post, voiced his frustration, stating that the court’s ruling should not interfere with shareholder decision-making.
The court also addressed the issue of attorney fees in the case, awarding $345 million, significantly less than the $5.6 billion requested by Richard Tornetta, a Tesla shareholder who filed the lawsuit. While McCormick acknowledged the legal method used to calculate the fees, she concluded that such a large award would be an undue windfall.
The controversial compensation plan was initially approved by Tesla shareholders in March 2018, designed to reward Musk for the company’s extraordinary growth. However, Tornetta filed a lawsuit alleging that Musk had essentially dictated the terms of the deal to directors who lacked sufficient independence. Tornetta also accused Musk of “unjustified enrichment” and called for the annulment of the package that contributed to Musk becoming the world’s richest individual.
During the trial, Musk defended the deal, stating that Tesla’s investors were highly sophisticated and that the company’s success, particularly with the Model 3, was a result of his leadership. He denied playing any role in crafting the compensation package, maintaining that it was solely the work of the board, which included several close associates.
The Delaware Court of Chancery has long been a cornerstone of US corporate law and is the preferred jurisdiction for many Fortune 500 companies. Following the ruling, Musk expressed his discontent by reposting calls for companies to move their operations out of Delaware.
This latest ruling marks another chapter in the ongoing legal and corporate saga surrounding Elon Musk’s compensation package and the broader dynamics between powerful CEOs and shareholders in American corporations.
