Tesla’s $56 Billion Pay Package Ruling Rebuffed by Delaware Judge
A Delaware judge has refused to reinstate a $56 billion compensation package awarded to Tesla CEO Elon Musk despite a June vote by the company’s shareholders in favor of the deal.
In her 101-page opinion, Chancellor Kathaleen McCormick of the Court of Chancery stated that Tesla’s board was not entitled to reverse a decision made in January that called the pay package excessive and rescinded it.
McCormick noted that a ratification vote must be conducted before the trial and that a company cannot ratify a transaction involving a conflicted controller. She also found that Tesla made multiple material misstatements in its proxy statement regarding the vote and could not claim the vote was a “cure-all” to justify restoring Musk’s pay.
Tesla is likely to appeal the ruling to the Delaware Supreme Court, a process that could take up to a year.
Musk responded to the ruling on social media, saying that “shareholders should control company votes, not judges.” Tesla stock fell 1.4% in after-hours trade after the ruling.
Several shareholder advisory firms and Tesla owners had argued that Musk’s potential departure from the company, as well as delays in developing new products and technology, could be accelerated if the pay package were rescinded.
The Delaware Supreme Court is expected to weigh in on the appeal. McCormick’s previous decision in January had prompted criticism from Musk and supporters who claimed that the decision had overruled the voice of shareholders.
Meanwhile, the judge also awarded plaintiff’s attorneys $345 million, although the amount was far below the $6 billion requested.