A U.S. judge has upheld her decision to reject Elon Musk’s $55.8 billion compensation package at Tesla, stating that the company’s attempt to reinstate the plan through a shareholder vote was invalid. This marks a significant blow to Musk and Tesla, as the package had been one of the largest ever proposed for a corporate executive.
Chancellor Kathaleen McCormick of Delaware’s Court of Chancery ruled on Monday that Tesla’s June shareholder vote to ratify Musk’s compensation plan could not override her earlier January decision. She described the package as excessive and unfair to shareholders.
In her ruling, McCormick cited “material misstatements” in documents shared with shareholders before the vote.
“The motion to revise is denied,” McCormick wrote, emphasizing that Tesla’s arguments went against established legal precedents.
Tesla has announced plans to appeal the verdict. In a statement on Musk’s social media platform X, the company said, “Shareholders should control company votes, not judges.”
Musk echoed this sentiment in a separate post, calling for a shift in how such decisions are made.
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In addition to rejecting the pay package, the court awarded $345 million in attorney fees to the legal team of plaintiff Richard Tornetta, a Tesla shareholder. While this is a significant amount, it is far less than the $5.6 billion initially requested by Tornetta’s lawyers.
McCormick acknowledged that the lawyers’ calculation method was legally sound under Delaware law, which allows fees to be based on the percentage of benefits achieved. However, she ruled that awarding billions in fees would create “an excessive windfall.”
The compensation plan, approved by shareholders in March 2018, aimed to reward Musk for Tesla’s rapid growth. However, Tornetta argued in his lawsuit that the plan was unfair and accused Musk of using his influence to dictate the terms of the agreement.
Tornetta also alleged that Tesla’s board of directors, many of whom were close friends of Musk, lacked independence when approving the package. He claimed Musk was “unjustly enriched” by the deal, which played a significant role in making him the world’s richest man.
During a 2022 trial, Musk defended the plan, highlighting Tesla’s transformation under his leadership. He pointed out that Tesla was once considered the “laughingstock of the auto industry” but became a leader thanks to the success of its Model 3 sedan.
Musk denied having any role in creating the compensation package or influencing board members. He argued that Tesla’s investors are among the “most sophisticated in the world” and capable of evaluating his performance independently.
The case has drawn attention to the Delaware Court of Chancery, a key player in U.S. corporate governance. About two-thirds of Fortune 500 companies are registered in Delaware, giving the court significant influence over corporate disputes.