Success for Tesla shareholder as judge voids Elon Musk’s $56 billion pay package
February 1st, 2024
A judge has ruled in favour of a small Tesla shareholder, voiding Elon Musk’s $56 billion pay package and calling it “unfair” to shareholders.
Musk had been set to receive the largest pay package in corporate US history under a share-based compensation agreement negotiated by Tesla’s board of directors.
The 10-year pay agreement was reached in 2018, with directors arguing the large sum was designed to ensure Musk continued to dedicate his attention to the company, which produces electric vehicles.
The case was brought by Richard Tornetta, who held just nine shares in Tesla when he sued the company in 2018 over the pay package in a shareholder derivative lawsuit.
His lawyers argued that the Tesla board did not inform shareholders the company’s goals were easier to achieve than it was acknowledging, or that internal projections showed Musk was quickly going to qualify for large portions of the pay package.
They also argued the board had a duty to offer a smaller pay package or look for another CEO, and that the agreement should have required Musk to work full-time at Tesla instead of allowing him to focus on other projects, such as SpaceX and X (formerly Twitter), Reuters reports.
Kathaleen McCormick, the judge overseeing the case in the Delaware court, said: “Swept up by the rhetoric of ‘all upside’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?
“Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price.”
McCormick also highlighted the close relationships Musk has with various members of the Tesla board, which includes his brother Kimbal Musk.Last Updated: 1 February 2024