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.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
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.
Delaware judge orders Tesla shares to go back to $17 as they were back in 2018 before Elon Musk’s unfair pay award that screwed $TSLA shareholders by giving them a pathetic 1,200% return. pic.twitter.com/JtzcuFhRnh
— Sasha Yanshin (@sashayanshin) January 30, 2024
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.”
New York Times, January 23 2018
Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History
“If Mr. Musk were somehow to increase the value of Tesla to $650 billion — a figure many experts would contend is laughably impossible and would make Tesla one of the five largest… pic.twitter.com/LBWHkzZgCL
— Whole Mars Catalog (@WholeMarsBlog) January 31, 2024
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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