Elon Musk must give up a compensation package awarded by Tesla’s board of directors that is potentially worth more than $55bn (£43.4bn), a judge has ruled.
The Delaware court decision comes five years after a shareholder lawsuit targeted the Tesla chief executive and the directors. The company is incorporated in the state, with oversight for the tech giant resting there.
The defendants were accused of breaching their duties, resulting in a waste of corporate assets and unjust enrichment of Mr Musk.
Lawyers for the plaintiffs argued that the pay package was dictated by Mr Musk and was the product of sham negotiations with directors who were not independent.
Defence lawyers said the compensation package was fairly negotiated by a committee of independent directors, contained lofty performance milestones, and was affirmed by a shareholder vote that was not even required.
A lawyer for Mr Musk and other other Tesla defendants did not immediately respond to an email seeking comment.
Mr Musk reacted to the ruling on X, the social media platform he owns, by telling his followers: “Never incorporate your company in the state of Delaware.”
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He then went on launch a poll asking if he should incorporate Tesla in Texas, where the company’s largest physical presence is.
During a trial in November 2022, Mr Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.
However, the judge determined that because he was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.
“The process leading to the approval of Mr Musk’s compensation plan was deeply flawed,” Chancellor [judge] Kathaleen St Jude McCormick wrote.
“Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
Ms McCormick specifically cited Mr Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias.
She also noted that the working group negotiating the pay package included general counsel Todd Maron who was Mr Musk’s former divorce attorney.
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“In fact, Maron was a primary go-between for Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”
Ms McCormick concluded that the only suitable remedy was for Mr Musk’s compensation package to be rescinded.
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
Written by: Newsroom