Judge rejects Elon Musk’s $56 billion pay deal despite shareholder approval

Delaware Chancery Judge Kathaleen McCormick upheld her decision to overturn Tesla CEO Elon Musk’s $56 billion compensation package. Despite a shareholder vote earlier this year to reratify the deal, McCormick determined that the company’s legal arguments for reversing its judgment were flawed.

In a detailed 103-page opinion released Monday, McCormick rejected Tesla’s efforts to overturn its initial decision, citing several legal missteps. “The large and talented group of defense companies has gotten creative with the ratification argument, but their unprecedented theories run counter to multiple strains of established law,” she wrote.

Tesla announced its intention to appeal to the Delaware Supreme Court via a post on X (formerly Twitter). This development follows McCormick’s initial decision in January, which sided with plaintiff Richard Tornetta. The former corporate defense attorney argued that Musk’s influence on Tesla’s board created an unfair and uninformed negotiation process for the compensation package approved in 2018.

Musk’s pay deal was conditional on Tesla hitting specific stock price milestones, which the company quickly surpassed as it ramped up production of the Model 3 and Model Y. However, McCormick found Tornetta’s claim credible, saying Tesla’s governance was heavily influenced by Musk, making the deal unfair.

Shareholder vote fails to overturn decision

In an attempt to counter the court’s January ruling, Tesla presented McCormick’s findings in a proxy statement at a shareholder meeting in June, presenting the vote as a form of common law ratification. Shareholders approved the re-ratification by a margin of two to one. However, McCormick rejected the legal relevance of the vote, emphasizing that common law ratifications cannot serve as a defense after a post-trial opinion is issued. She also criticized the proxy statement because it contained material inaccuracies, thereby undermining the legitimacy of the shareholder vote.

McCormick further awarded Tornetta’s legal team $345 million in fees, a fraction of the $5.6 billion initially requested but still a significant sum.

The Delaware Chancery Court’s decision to reject Elon Musk’s $56 billion pay package, even after Tesla shareholders voted in favor, shows the challenges that arise when legal standards and investor actions come into play. in conflict. Although the vote indicated strong shareholder support, the court cited procedural and governance issues to justify its decision, reflecting the complexity of balancing legal oversight and shareholder interests.

Featured image courtesy of Bloomberg via Getty Images

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