A Delaware judge has once again rejected Elon Musk’s bid to secure a $56 billion compensation package from Tesla, despite a shareholder vote earlier this year to reinstate the deal. Chancellor Kathaleen McCormick of the Delaware Court of Chancery reaffirmed her previous decision from January, ruling that the pay package is excessive and cannot be revived by a shareholder vote after being rescinded in court.
Musk, Tesla’s CEO, has faced significant setbacks in his attempt to recover the compensation deal, which was designed to reward him with stock options tied to performance and valuation targets. Initially valued at $56 billion, the package has increased in worth to approximately $101 billion due to a recent surge in Tesla’s stock price.
In a detailed 101-page opinion, Chancellor McCormick stated that Tesla’s board lacked the authority to reset the pay package, even after the company’s shareholders voted to support it in June. The judge emphasized that allowing parties to alter facts after a ruling could lead to endless litigation. She explained that such a ratification vote should have taken place before the trial, not after the decision had been rendered, and reiterated that Musk’s role in the pay negotiations disqualified the board from reinstating the package.
Tesla’s legal team immediately vowed to appeal the decision. In a statement, the company argued that the judge had overruled the will of the majority of shareholders, many of whom support Musk’s leadership and were vocal in favor of restoring the compensation package. Musk himself criticized the ruling, stating on social media, “Shareholders should control company votes, not judges.”
Musk and Tesla are now expected to file an appeal to the Delaware Supreme Court. However, legal experts suggest that the appeal process could take up to a year to resolve. This development comes at a time when Musk’s influence in the tech and automotive sectors continues to grow, and Tesla’s future remains in the spotlight.
While Musk’s pay package originally incentivized him with stock grants based on 12 performance milestones, Tesla’s shareholder vote in June reaffirmed that a significant portion of the company’s investors still back the idea of the CEO receiving such a massive compensation deal. However, McCormick ruled that the package had been poorly communicated to investors and contained material misstatements in Tesla’s proxy filings.
Tesla shares fell 1.4% in after-hours trading following the ruling, with analysts anticipating a lengthy legal battle ahead.
This ruling comes at a time when Musk is also involved in broader political and business challenges. In addition to his role at Tesla, Musk is also co-leading initiatives to streamline government operations under former U.S. President Donald Trump, an informal position that allows him to retain his role at Tesla while managing his other ventures, including SpaceX.
Tesla’s compensation package has drawn significant attention due to its size – it was the largest executive compensation plan ever, valued at 33 times the next largest. It has also sparked discussions about the role of shareholders in shaping executive pay and corporate governance.
In a separate but related ruling, Chancellor McCormick awarded $345 million in legal fees to the firms that brought the case, a notable sum but far less than the $6 billion originally sought. These fees are to be paid either in cash or Tesla stock.
The case has ignited debate among Tesla’s investors, many of whom are dissatisfied with the ruling. On social media, fans and stakeholders have rallied behind Musk, voicing their frustration with the court’s decision and advocating for the appeal. Some investors argue that shareholder democracy should prevail over judicial intervention.
One outspoken voice, Omar Qazi (@WholeMarsBlog), a prominent Tesla investor, expressed on social media, “The bigger issue here is that the voice of shareholders is being overruled.” Qazi’s followers have passionately backed Musk and questioned the court’s decision.
As the appeal process unfolds, Tesla’s future and Musk’s legacy remain uncertain. While Tesla’s market value has grown substantially, the company’s governance structure will be under increased scrutiny. The court’s ruling has intensified the debate on executive compensation, shareholder rights, and corporate transparency.
For now, Tesla and Musk’s legal teams are gearing up for a prolonged battle in the Delaware Supreme Court, with no clear resolution in sight.
READ MORE: