***Delaware Judge Rules Against Musk’s $56 Billion Pay Package***
A Delaware judge ruled on Monday (December 2) that Tesla CEO Elon Musk is still not entitled to a $56 billion compensation package, despite shareholders of the electric car company reinstating the incentive in June when they voted on it.
***Uncertain Future for Tesla***
The Chancery Court judge, Kathaleen McCormick, had deemed Musk’s compensation package to be excessive and had initially rejected the proposal in a ruling back in January. The decision came as a surprise to investors and has cast uncertainty over the future of Tesla.
***Tesla’s Response***
In a statement posted on X, Tesla expressed, “The judgment is incorrect, and we will appeal. If this judgment is not overturned, it means that judges and plaintiff attorneys are controlling companies in Delaware, not their rightful owners – the shareholders.”
Musk also stated on X, “Shareholders should be in control of company voting, not judges.”
***Appeal and Legal Battle Ahead***
Following the order issued by McCormick, Musk and Tesla can immediately appeal to the Delaware Supreme Court. The appeal process could take up to a year before a final decision is reached.
***Legal Arguments and Fallout***
In court documents, Tesla argued that the judge should recognize the shareholder vote in June and reinstate the compensation plan. However, McCormick contended that the Tesla board had no authority to “restart” Musk’s compensation package.
In her 101-page opinion, she wrote, “If the court allows the losing party to manufacture new facts in order to modify the judgment, the litigation will become endless.”
***Stock Price Movement***
After the ruling, Tesla’s stock price fell by 1.4% in after-hours trading. Even if Musk ultimately fails to secure the compensation, it is unlikely to affect his status as the world’s wealthiest individual.
***Investor Sentiments***
The Future Fund has long considered Tesla a significant holding, with its managing partner Gary Black indicating on X that he believes the Delaware Supreme Court is more pragmatic than McCormick.
Black stated, “Tesla has every reason to overturn McCormick’s decision on appeal, as two shareholder votes, one in 2018 and another in 2024, overwhelmingly supported Elon’s incentive plan.”
***Value of Compensation Package***
Though the original award was valued at $56 billion, Tesla’s stock price has surged by 42% since then, bringing the total value of the compensation plan to $101 billion.
***Legal Costs and Consequences***
McCormick also ordered Tesla to pay $345 million to the attorneys who brought the lawsuit, significantly lower than their initial demand of $6 billion but still the largest payout in securities litigation history. The payment can be made in cash or Tesla stock.
***Shareholder Reactions***
Following the January ruling, Tesla shareholders submitted thousands of letters to the court, fearing that canceling Musk’s compensation could increase the likelihood of him leaving Tesla or pursuing AI development outside of the company.
***Details of Compensation Plan***
Under the 2018 compensation plan, Musk does not receive a base salary. Instead, he is granted stock options equivalent to approximately 1% of Tesla’s equity whenever the company achieves certain operational and financial milestones. If all 12 milestones are met, Musk could receive a substantial amount of stock options in twelve installments.