Elon Musk's Tesla's US$55 billion (R1 trillion) salary proposal was struck down by a Delaware judge after shareholders challenged it as excessive. The ruling will take a big bite out of Musk's wealth and cast doubt on the fate of his company.
That is if the judgment survives, which is likely to be appealed.
Tuesday's ruling marks the first major court defeat for Tesla, but it comes more than five years after the electric car maker's co-founder was granted the largest executive compensation plan in history, and Tesla's board of directors first That means you have to start over and come up with a new compensation plan. New proposal. Since being challenged in Delaware Chancery Court, Mr. Musk has not attempted to exercise his option. Tesla's stock price fell about 3% in after-hours trading on the news.
Years after selling a significant chunk of his company's stock to buy Twitter, Musk has repeatedly asked Tesla's board to give him another huge stock award. The billionaire said he needed a bigger stake in Tesla to maintain control of the electric car maker and further expand into artificial intelligence.
The ruling leaves the future of Musk's fortune up in the air. Options worth about $51.1 billion were one of his most valuable assets. Without them, his net worth would drop to $154.3 billion, making him the third richest person in the world after spending most of the past few years at number one.
Evan Chesler, Musk's New York-based lawyer, did not immediately respond to an email and phone call seeking comment on the decision late Tuesday.
Following a case that ended more than a year ago, Delaware Chancery Court Chief Justice Catherine St. J. McCormick ruled that Tesla's directors should make adequate disclosures about its 2018 executive compensation package and the performance standards required of Mr. Musk. supported investors who complained that they had not done so. She also found that conflicts of interest prevented boards from considering pay plans.
The richest people in the world – for now
“Ultimately, Mr. Musk initiated the self-driving process, readjusting his speed and direction as he saw fit along the way,” the judge wrote in the 200-page ruling. “This process has come at an unjust cost. And through this lawsuit, plaintiffs are demanding a recall.”
Musk, 52, has risen to the top of the world's richest list thanks to his stake in Tesla, the world's most valuable car company. Stock options under his compensation plan have vested in stages over the past several years based on the achievement of performance goals, but he has not exercised any of the options, according to regulatory filings.
The billionaire was quick to react to the ruling on social media platform X (formerly known as Twitter). “If you want shareholders to make decisions, incorporate in Nevada or Texas,” he recommended.
Read: Elon Musk aims for 25% voting share in Tesla
Mr. Musk, who prides himself on flouting corporate norms, has typically won legal battles, including a shareholder lawsuit over his acquisition of renewable power company SolarCity.
In a liability lawsuit, lawyers for Tesla shareholder Richard Tornetta argue that board members created a pay plan for the company's CEO and allowed the details of the pay plan to be improperly designed to suit the CEO's preferences. , argued that the board failed to exercise its independence.
Mr. Tornetta's lawyers argued in a brief that Mr. Musk directed that “the framework and financial terms remained essentially unchanged” through the board's approval process. In his decision, McCormick noted that Musk acknowledged that he essentially “negotiated against himself” over his compensation.
“The most glaring omission in this process is the complete absence of any evidence of adversarial negotiations between the board and Mr. Musk regarding the size of the grant,” the judge said. The verdict was delayed partly because the judge had back surgery last year.
Musk's defense team has failed to explain why a “historically unprecedented compensation plan” is needed to incentivize CEOs to achieve “transformational growth.” The judge said Musk had no intention of leaving Tesla and that his stock ownership was enough incentive to remain focused on growth.
“Overwhelmed by the 'everything is better' rhetoric, or perhaps dazzled by the allure of Mr. Musk's superstardom, the board never raised the $55.8 billion question. “Was that plan really necessary to achieve my goals?” she wrote.
In an earnings call last week, Mr. Musk doggedly pursued an expansion into Tesla's stock, explaining that the issue was not about money but about his command over the automaker. “I don't want to control it. But if my influence over the company is so small at this stage, I could be voted out by some random shareholder advisory firm.”
Tesla's CEO named proxy advisory firm Glass Lewis and Institutional Shareholder Services (the latter of which he jokingly referred to as the extremist organization Isis), saying they had a “strange idea.” He claimed it was being infiltrated by “activists.”
Greg Ballaro, one of Mr. Tornetta's lawyers, welcomed the reversal of the “exorbitantly high compensation to Mr. Musk.” He added in an email that the decision eliminates the dilutive effect Tesla shareholders suffered from the “huge” plan.
mars mission
It remains unclear whether Musk will appeal Tuesday's ruling or whether Tesla's board will develop a new pay package.
Mr. Musk has spent years pursuing his ambitions to go to Mars through SpaceX, pledging much of his wealth, but SpaceX is the world's second-most valuable startup, leading the commercial space industry. became a huge company. He vowed to use the options in the 2018 package to fund Mars colonization if it is supported.
“Colonizing Mars is an expensive endeavor,” the judge said. “Mr. Musk believes he has a moral obligation to direct his wealth toward that goal, and he sees compensation from Tesla as a means to fund that mission.”
Read: Elon Musk explains why Tesla won't launch in South Africa
In a 2018 Twitter post, he said, “Half of my money goes to solving Earth's problems, and the other half goes to building a self-sustaining city on Mars when Earth suffers a catastrophe. “This is to ensure the continuation of life (of all species) in case of an emergency.” If a dinosaur-like meteorite or World War III happens, we will self-destruct. ” — Jeff Feely, Tom Maloney, Bob Van Voris, Eric Larson, Michael Leonard, Dana Hull, Chester Dawson, (c) 2024 Bloomberg LP
