Why A Judge Rejected Musk's $56 Billion Tesla Pay Package

"You can't always get what you want." The Rolling Stones, 1969. 

The judge ruled that the original board vote was too heavily influenced by Musk and that settled law prevented the consideration of subsequent shareholder votes. No wonder Musk hates the rule of law. JL

Trisha Thadani and Faiz Siddiqui report in the Washington Post:

A Delaware judge rejected a bid to restore Elon Musk’s record-setting $56 billion pay package, despite Tesla shareholders voting to award Musk the stock grant, ruling in a case brought by Tesla shareholders that the company’s board was too heavily influenced by Musk when it adopted the package. “The large group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law.” Judge Kathleen McCormick said that the rules prevented her court from considering the new shareholder vote and that the defendants had no grounds for reversing the earlier decision “based on evidence they created after trial.”

A Delaware judge rejected a bid to restore Elon Musk’s record-setting $56 billion pay package, despite Tesla shareholders overwhelmingly voting to award Musk the stock grant earlier this year.

Delaware Court of Chancery Judge Kathaleen McCormick originally struck down the controversial compensation deal — the highest CEO pay package in history — in January, ruling in a case brought by a group of Tesla shareholders that the company’s board was too heavily influenced by Musk when it adopted the package in 2018.

 

Tesla’s board responded by asking shareholders to participate in a new vote on whether to award the package, to be paid in stock awards. In June, that measure was passed. But McCormick opted Monday to uphold her original decision against Musk, Tesla and some board members who joined the defendants in challenging the earlier decision.

 

“The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” McCormick wrote in her opinion.

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McCormick said that the rules prevented her court from considering the new shareholder vote and that the defendants had no grounds for reversing the earlier decision “based on evidence they created after trial.”

The judge also dismissed some arguments made by the plaintiffs who challenged Musk’s pay package, turning down their request for an award of $5.6 billion in fees that had been criticized as excessive by Musk’s backers.

“In a case about excessive compensation, that was a bold ask,” McCormick wrote of the plaintiffs’ request, awarding them a lower amount of $345 million payable in Tesla stock or cash.

 

Before the pay package was first struck down by McCormick in January, Musk threatened to pull back from Tesla unless he was granted greater control and influence by shareholders. The shareholder vote to back the package suggested investors still held a lot of confidence in the CEO, despite disappointing sales, mass layoffs and increased regulatory scrutiny.

Musk remains the world’s richest person after Monday’s decision, according to Bloomberg, which comes as the entrepreneur’s wealth hits an all-time high. Tesla’s stock has soared since Donald Trump won the presidential election last month, as investors bet on his companies benefiting from the tech billionaire’s close relationship with the president-elect and relaxed regulations from the incoming administration.

Tesla stock closed at $357 a share on Monday but fell 1.2 percent after hours. Musk did not immediately reply to a request for comment. On his social media site X he responded to another user’s comment on the ruling and wrote that McCormick was “an activist posing as a judge.”

 

A statement posted by Tesla’s account on X said that the company would appeal Monday’s decision. “This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners — the shareholders,” the statement said.

Attorneys for the plaintiffs in the case said they were pleased with McCormick’s ruling and the fees awarded.

“We hope that the Chancellor’s well-reasoned decision will end this matter for the shareholders of Tesla,” they wrote in a statement released by the law firm Bernstein, Litowitz, Berger & Grossmann. “However, if defendants choose to further delay implementation of this judgment by appealing it, we look forward to the privilege of defending the Court’s thoughtful and well-grounded opinions on appeal to the Delaware Supreme Court.”