Delaware Judge Kathaleen McCormick has invalidated Elon Musk’s staggering $55 billion Tesla pay package, following a shareholder’s claim that it was excessive. This decision marks a significant setback for the billionaire entrepreneur, who has been at the helm of Tesla Inc., one of the world’s most valuable car companies.
The court’s decision came after Richard Tornetta, a Tesla investor, contested the 2018 compensation agreement, arguing it failed to clearly articulate the benefits to shareholders and was excessively generous. The package, which could have made Musk the world’s richest person, was termed ‘unfathomable’ by Chancery Court Chief Judge Kathaleen St. J. McCormick.
“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” wrote McCormick in her 201-page opinion.
The dispute centers around a compensation package that allowed Musk to acquire approximately 304 million shares at $23.33 each, significantly lower than their closing price of $191.59. This package, tied to ambitious company milestones, was fully earned by Musk as Tesla achieved remarkable growth, with its valuation soaring to over $1 trillion in 2021 from $50 billion.
Amit Batish of Equilar noted that Musk’s compensation was nearly six times the total pay of the top 200 highest-paid executives in 2021.
The plaintiff’s legal team argued that Tesla’s board should have considered a less generous compensation package or sought a different CEO, emphasizing the need for Elon Musk to dedicate his full attention to Tesla rather than dividing it among ventures like SpaceX and X.
They criticized the board for being overly influenced by Musk, a sentiment echoed by Kristin Hull, founder of Nia Impact Capital, who pointed out a similar trend of executive dominance at other major tech companies, referring to it as “the bro-show.”
Musk’s Tesla pay package, unprecedented in its scale, was tied to market capitalization and operational milestones that Tesla would need to reach. The compensation plan could have awarded Musk more than $55 billion over a decade, assuming all goals were met, and Tesla’s market value dramatically increased.
The judge’s ruling has sparked a flurry of speculation about the potential consequences for Musk and Tesla. While the company has yet to outline its next steps, the ruling could have far-reaching implications for executive compensation in the US, potentially curbing the trend of sky-high CEO pay packages.
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