8:22 am, January 31, 2024
Elon Musk must give up a pay package potentially worth more than 55bn dollars (£43.4bn), a judge has said.
The ruling in a Delaware court comes five years after a shareholder lawsuit targeted Tesla chief executive Musk and the directors.
They were accused of breaching their duties to the electric vehicle and solar panel manufacturer, resulting in a waste of corporate assets and unjust enrichment for Musk.
Lawyers for the plaintiffs argued that the pay package was dictated byMusk and was the product of sham negotiations with directors who were not independent of him.
Defence lawyers said the pay plan was fairly negotiated by a committee of independent directors, contained lofty performance milestones, and was blessed by a shareholder vote that was not even required.
An attorney for Musk and other other Tesla defendants did not immediately respond to an email seeking comment.
But Musk reacted to the ruling on X, the social media platform formerly know as Twitter that he owns, by offering business advice. ‘Never incorporate your company in the state of Delaware,’ he said.
In trial testimony in November 2022, 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.
The judge determined, however, that because Musk 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 Kathaleen St Jude McCormick wrote in the colourfully written 200-page decision.
‘Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.’
McCormick specifically cited 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 working on the pay package included general counsel Todd Maron who was Musk’s former divorce attorney.
‘In fact, Maron was a primary go-between 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.’
McCormick concluded that the only suitable remedy was for Musk’s compensation package to be rescinded.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.’
