By Summary
- Shareholders had argued ruling may lead Musk to leave Tesla.
- Musk criticized the judge; suggested companies reincorporate in Texas.
- Tesla ordered to pay $345 million in attorney fees.
WILMINGTON, Delaware, Dec 2 (AfrikTimes) – A Delaware judge ruled on Monday that Tesla CEO Elon Musk still is not entitled to receive a $56 billion compensation package, despite shareholders of the electric vehicle company voting to reinstate it.
The ruling by the judge, Chancellor Kathaleen McCormick of the Court of Chancery, follows her January decision that called the pay package excessive and rescinded it, surprising investors, and cast uncertainty over Musk’s future at the world’s most valuable carmaker. Musk did not immediately respond to an emailed request for comment.
Tesla has said in court filings that the judge should recognize a subsequent June vote by its shareholders in favor of the pay package for Musk, the company’s driving force who is responsible for many of its advances and reinstate his compensation.
Tesla CEO and X owner Elon Musk listens as US President-elect Donald Trump speaks during a meeting with House Republicans at the Hyatt Regency hotel in Washington, DC, U.S. on November 13, 2024.
However, McCormick stated that Tesla’s board was not permitted to “hit reset” and restore Musk’s pay package. “Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable,” she wrote in her 101-page opinion.
She also said 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.
“Taken together,” the problems with Tesla’s arguments “pack a powerful punch,” she wrote. Tesla shares fell 1.4% in after-hours trade, after the ruling.
McCormick also ordered Tesla to pay $345 million in attorney fees to the firms that brought the case, significantly less than the $6 billion they had originally requested. The fee can be paid in cash or Tesla stock.
Tesla’s new Model 3 sedan is displayed next to Model X SUV at the China International Fair for Trade in Services (CIFTIS) in Beijing, China, on September 2, 2023.
“We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into Court proceedings,” said a statement from Bernstein Litowitz Berger & Grossmann, one of the three law firms for the plaintiff.
Musk and Tesla can appeal to the Delaware Supreme Court as soon as McCormick enters a final order, which could come as soon as this week. The appeal process could take up to a year to resolve.
After the January ruling, Tesla shareholders flooded the court with thousands of letters arguing that rescinding Musk’s pay package increased the possibility he would leave Tesla or develop some products like artificial intelligence at ventures other than Tesla.
Tesla CEO Elon Musk and his security detail depart the company’s local office in Washington, U.S. January 27, 2023.
Attorneys for shareholder Richard Tornetta, who sued in 2018 to challenge Musk’s compensation package, had argued that Delaware law does not permit a company to use a ratification vote to essentially overturn the ruling from a trial.
In January, McCormick found that Musk had improperly controlled the 2018 board process to negotiate the pay package. The board had argued that Musk deserved the compensation because he met ambitious targets related to market value, revenue, and profitability. However, the judge criticized Tesla’s board as being “beholden” to Musk, stating that the compensation plan had been proposed by a board whose members had conflicts of interest due to close personal and financial ties to him.
After the January ruling, Musk criticized the judge on his social media platform X, urging other companies to follow Tesla’s lead and reincorporate in Texas rather than Delaware, although it remains unclear if any companies followed that advice.
Lagging electric vehicle sales are among the problems dogging Tesla.
The judge in her January ruling called the pay package the “biggest compensation plan ever – an unfathomable sum.” It was 33 times larger than the next biggest executive compensation package, which was Musk’s 2012 pay plan. As of Monday, the pay package was worth $101.4 billion, according to Equilar, a compensation consulting firm.
Musk’s 2018 pay package gave him stock grants worth around 1% of Tesla’s equity each time the company achieved one of 12 tranches of escalating operational and financial goals. Musk did not receive any guaranteed salary. Tornetta argued that shareholders were not told how easily the goals would be achieved when they voted on the package.
In April, Tesla asked shareholders to restore the $56 billion Elon Musk pay package that had been voided by a Delaware judge.
