Tesla CEO Elon Musk's $56 billion pay package has been rejected once more by a Delaware judge. In a recent ruling, Delaware Chancery Court Judge Kathaleen St. J. McCormick reaffirmed her earlier decision to block the compensation plan, citing substantial concerns regarding conflicts of interest that arose following its approval in 2018.
Judge McCormick stated that Musk effectively controlled Tesla's board and orchestrated the pay package during what she termed 'sham negotiations.' This ruling emphasizes the critical nature of corporate governance and the necessity for transparency in executive compensation.
In June 2024, Tesla warned shareholders that Musk might depart the company if his pay package was not approved. Although a shareholder vote resulted in approval of the compensation, the judge maintained that this was inadequate to overturn her previous ruling.
The decision indicated that Musk had 'no procedural ground for flipping the outcome of an adverse posttrial decision based on evidence they created after trial.' The judge also described claims that shareholders could alter the outcome of a court ruling as 'dubious generally and unquestionably false' in this case.
Judge McCormick awarded $345 million to the lawyers representing Tesla shareholders who sued over the pay package, reflecting the significant legal costs incurred during the litigation.
In response to the ruling, Tesla announced plans to appeal the decision to the Delaware Supreme Court, arguing that the ruling undermines shareholder rights and allows judges and plaintiffs' lawyers to exert undue influence over corporate governance.
Prior to the shareholder vote, Tesla board chair Robyn Denholm indicated that the board had contemplated introducing a new pay plan if the shareholder vote did not succeed. However, creating a new compensation package with similar stock grants could cost shareholders tens of billions of dollars, as the original package was tied to stock worth an estimated $2.3 billion that has already been distributed.
Despite the ongoing legal disputes regarding his compensation, Elon Musk remains the richest person globally. Tesla's stock continues to perform well, supported by broader market trends and investor sentiment. The outcome of the appeal and any potential restructuring of Musk's pay package will be closely watched by investors and legal experts.