Delaware judge once again rejects Musk’s $56 billion Tesla salary – Business

WILMINGTON, Del. (Reuters) – A Delaware judge ruled on Monday that Tesla CEO Elon Musk is still not entitled to receive $56 billion in compensation despite the vehicle company’s shareholders voting electricians in June for his reinstatement.

The decision by Chancellor Judge Kathaleen McCormick of the Court of Chancery follows her January ruling that called the pay package excessive and struck it down, surprising investors and sowing uncertainty over the Musk’s future at the world’s most valuable automaker.

In an article on X after the ruling, Musk said “shareholders should control the company’s votes, not judges.”

Tesla, in a statement on

Musk and Tesla can appeal to the Delaware Supreme Court as soon as McCormick issues a final order, which could come as early as this week. The appeal could take a year.

Tesla said in court that the judge should recognize its shareholders’ subsequent vote in June in favor of Musk’s pay package, the company’s driving force responsible for many of its advances, and reinstate his compensation.

McCormick said Tesla’s board was not authorized to press “reset” on restoring Musk’s pay package.

“If the court tolerated the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable,” she said in her 101-page opinion.

She said a ratification vote like the one used by Tesla must be held before trial and that a company cannot ratify a transaction involving a conflicted controller. She had determined that Musk was in control of salary negotiations.

She also said Tesla made numerous material inaccuracies in its proxy statement regarding the vote, and that it could not claim the vote was a “panacea” to justify reinstating Musk’s salary.

Tesla shares fell 1.4% in after-hours trading following the decision.

Gary Black, managing partner of The Future Fund, which owns Tesla shares, said on X that he thought the Delaware Supreme Court was more pragmatic than McCormick. “I doubt this decision will be resolved in the near future, and it will likely be overturned by a more moderate court down the road,” he wrote.

The salary package provided for the granting of stock options to Musk if the company achieved its performance and valuation objectives.

While the price was initially valued at $56 billion, Tesla shares have surged 42% since November 5, when Republican candidate Donald Trump, backed by Musk, won the US presidential election. Following this recovery, the salary package is worth approximately $101 billion.

The move comes as Trump has charged Musk with creating a more efficient government by cutting spending. The role as co-head of the new Department of Government Efficiency would be informal rather than governmental, allowing Musk to keep his job at Tesla as well as run other companies, including rocket maker SpaceX.

Musk threw himself behind Trump’s election campaign and became a close advisor in the process.

PAYDAY FOR PLAINTIFF’S LAWYERS

McCormick also ordered Tesla to pay $345 million to the lawyers who brought the case, well short of the $6 billion initially sought, but it remains one of the largest awards ever awarded in a litigation dispute. securities. She said the fee could be paid in cash or Tesla stock.

“We are pleased with Chancellor McCormick’s decision, which rejected Tesla’s invitation to inject continued uncertainty into the legal proceedings,” said Bernstein Litowitz Berger & Grossmann, one of the plaintiff’s three law firms, in a press release.

The law firm also said it looked forward to defending the court’s opinion if Musk and Tesla appealed.

After the January ruling, Tesla shareholders flooded the court with thousands of letters claiming that forfeiting Musk’s salary increased the possibility that he would leave Tesla or develop certain products like artificial intelligence at companies other than Tesla .

Family investors and influential Musk fans helped Tesla and Musk win the shareholder vote in June and many spoke out on social media against Monday’s decision.

“Beyond the pedantic details of the legal procedure, the biggest problem here is that the voice of shareholders is being ignored,” Omar Qazi said in a post on X from the handle @WholeMarsBlog after Monday’s ruling.

“If they can’t consider the vote in this case, I hope they do it on appeal,” said Qazi, who has more than 551,000 followers.

McCormick found in January that Musk poorly controlled the 2018 boardroom process for negotiating the pay package. The board had said that Musk deserved the package because he had achieved all the ambitious goals for market value, revenue and profitability.

After the January ruling, Musk criticized the judge on his social media platform X and encouraged other companies to follow Tesla’s lead and reincorporate in Texas from Delaware, even though he is not clear if companies have done it.

In her January ruling, the judge called the pay package “the largest compensation package ever – an unfathomable amount.” It was 33 times higher than the next largest executive compensation package, Musk’s 2012 salary plan.

Musk’s pay package for 2018 awarded him stock worth about 1% of Tesla’s equity each time the company hit one of 12 incremental increments of operational and financial goals.

Musk received no guaranteed salary. Tornetta argued that shareholders were not informed of how easily the targets would be achieved when they voted on the package.