February 26, 2024

Chancellor Kathaleen St. Jude McCormick of Delaware has ruled that Tesla CEO Elon Musk is not eligible for the significant compensation package granted by the company’s board of directors, which could be valued at over $55 billion, reports Associated Press.

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This decision comes after a shareholder lawsuit was filed more than five years ago, alleging that Musk and the directors had violated their responsibilities towards Tesla, leading to the misuse of corporate resources and unjust enrichment for Musk.

The attorneys representing the shareholder contended that the remuneration arrangement ought to be invalidated as it was influenced by Musk and resulted from deceptive discussions with directors who lacked impartiality. Furthermore, they asserted that the shareholders who approved it were provided with inadequate and misleading information in a proxy statement.

The defense attorneys argued that the compensation committee, consisting of independent members, had fairly negotiated the pay plan. They emphasized that the plan included ambitious performance milestones, which were even mocked by certain Wall Street investors.

Furthermore, they highlighted that the plan had been approved by shareholders, despite not being mandatory under Delaware law. Additionally, they contended that Musk’s ownership of less than one-third of the company meant he was not a controlling shareholder.

Musk responded to the decision regarding X, the social media platform previously recognized as Twitter which he possesses, by providing valuable business counsel. He expressed, “It is advisable to avoid incorporating your company in Delaware.” Furthermore, he suggested, “If you prioritize shareholders having the authority to make decisions, I suggest considering incorporation in Nevada or Texas.”

Musk, who currently holds 13% of Tesla’s shares, recently challenged the company’s board to devise a new compensation plan that would grant him a 25% stake in the company. Despite not having full control over the company with a 25% stake, Musk believes he would still possess significant influence. During an earnings call last week, he clarified his intentions.

During trial testimony in November 2022, Musk denied having any involvement in dictating the terms of the compensation package or attending meetings where the plan was discussed by the board, its compensation committee, or the working group responsible for its development.

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