A Delaware judge on Tuesday ruled that billionaire Elon Musk’s $56 billion Tesla pay package might be voided, calling the compensation “an unfathomable sum” that was not fair to shareholders, based on a court filing.
“The plaintiff is entitled to rescission,” the judge said in her ruling.
The court’s opinion directed the Tesla shareholder who challenged the pay plan to work with Elon Musk’s legal team on an order implementing the judge’s decision.
Musk’s lawyer didn’t immediately reply to an email in search of comment. Musk posted on X: “Never incorporate your organization within the state of Delaware.”
“Good day for the great guys,” said an email from Greg Varallo, an attorney for the Tesla shareholder Richard Tornetta who brought the lawsuit.
The ruling might be appealed to the Delaware Supreme Court.
The judge, Kathaleen McCormick of Delaware’s Court of Chancery, said the pay package didn’t meet the usual of a good price.
“The incredible size of the most important compensation plan ever — an unfathomable sum — seems to have been calibrated to assist Musk achieve what he believed would make ‘ future for humanity’,” wrote McCormick in her 201-page opinion.
Tesla’s agreement with Musk is by far the biggest compensation deal ever for an executive and it contributes a major a part of his fortune, which is one in every of the world’s largest.
Tesla directors argued during a week-long trial that the corporate was paying to make sure one in every of the world’s most dynamic entrepreneurs continued to dedicate his attention to the electric-vehicle maker. Antonio Gracias, a Tesla director from 2007 to 2021, called the package “an important deal for shareholders” because he said it led to the corporate’s extraordinary success.
Tornetta’s lawyers argued the Tesla board never told shareholders that the goals were easier to attain than the corporate was acknowledging and that internal projections showed Musk was quickly going to qualify for big portions of the pay package.
The plaintiff’s legal team also argued the board had an obligation to supply a smaller pay package or look for an additional CEO and that they need to have required Musk to work full-time at Tesla as a substitute of allowing him to concentrate on other projects.
Musk in 2022 bought social media company Twitter, which he renamed X, and he has founded several startups, including brain implant company Neuralink, tunneling enterprise the Boring Co and SpaceX, a rocket enterprise.
Musk testified through the compensation trial in November 2022 that the cash could be used to finance interplanetary travel.
“It’s a option to get humanity to Mars,” he testified. “So Tesla can assist in potentially achieving that.”
The package grants stock option awards allowing Musk to purchase Tesla stock at heavily discounted prices as escalating financial and operational goals are met.
He must hold the acquired stock for five years.
Musk qualified for all 12 tranches or performance targets within the plan. He was not guaranteed any salary.
The ruling will put the highlight on Tesla’s next round of compensation negotiations with the CEO. Musk said in a post on X in January that he was uncomfortable leading Tesla unless he had 25% of the voting control. The billionaire owned around 13% of the corporate on the time.
Tesla’s value ballooned to briefly top $1 trillion in 2021 from $50 billion when the package was negotiated.
Amit Batish at Equilar, an executive pay research firm, estimated in 2022 that Musk’s package was around six times larger than the combined pay of the 200 highest-paid executives in 2021.
In July, Tesla’s directors agreed to return $735 million to the corporate to settle shareholder allegations brought in a separate lawsuit filed in 2020 that they overpaid themselves. The lawsuit challenged options that were granted to directors starting in June 2017.