A judge rejects Elon Musk’s $55 billion compensation plan for Tesla

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Written By Vikas Jangid

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  • A Delaware judge denied Elon Musk's $55 billion compensation deal for Tesla on Tuesday.
  • Concluding a trial that lasted over a year. In 2018.
  • Tesla shareholders filed a lawsuit against Tesla and Musk regarding the proposed payment package.

Elon Musk Got Some Bad News

On Tuesday, a Delaware judge decided to invalidate Musk's $55 billion compensation package for Tesla, supporting a shareholder who contended in a lawsuit that the CEO's pay arrangement was excessive.

The decision implies that Tesla must propose a new compensation package for Musk, though they have the option to appeal. It also leaves a significant portion of Musk's wealth, primarily linked to his Tesla stock, in a state of uncertainty.

            Source: Yahoo Finance

"In essence, Musk initiated a self-directed procedure, adjusting the speed and direction as he deemed fit," noted Court of Chancery Judge Kathleen St. J. McCormick. "The process resulted in an unjust price. Through this legal action, the plaintiff seeks a reconsideration."

The judge stated that during the trial, Tesla provided insufficient justification for determining the price of the compensation plan, and Musk's close relationship with some board members hindered their ability to act independently.

"The process leading to the approval of Musk's compensation plan was seriously flawed," McCormick emphasized. "Musk had extensive connections with individuals tasked with negotiating on behalf of Tesla."

More than a year ago, Judge McCormick presided over the trial where Tesla shareholder Richard Tornetta sued Tesla and Musk in 2018, claiming that the extravagant pay plan exceeded reasonable judgment. Tornetta argued that Musk influenced the board's decision through his close personal connections with board members, including his brother.

Source: New York Post

Tesla countered, asserting that the substantial pay was essential to keep Musk focused on the company, and shareholders like Tornetta had benefited from Musk's leadership.

Musk, his lawyer, and a Tesla spokesperson did not immediately respond to a comment request. However, Musk swiftly reacted to the ruling on social media.

"Never incorporate your company in the state of Delaware," Musk posted on X.

Musk doesn't receive a salary from Tesla; instead, his compensation revolves around achieving financial milestones set in 2018. The plan involves a 10-year grant of 12 tranches of stock options vested upon Tesla reaching specific targets. Tesla claims to have met all 12 targets as of 2023. At each milestone, Musk receives stock equivalent to 1% of outstanding shares at the time of the grant.

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