Elon Musk was hoping for a $56 billion compensation plan from Tesla’s board of directors, and he came so close. This was until a Delaware judge ruled it “unfair” since Musk had so much control over those negotiating the deal.
Groundbreaking Compensation Overturned
A Delaware judge has nullified Tesla CEO Elon Musk’s colossal $56 billion compensation plan, pointing to the board’s inability to substantiate its fairness.
Tesla Stocks React to Verdict
The stock market responded with a 3% drop in Tesla shares during after-hours trading as news of the Delaware Chancery Court decision reached investors.
Unfair Compensation Plan
According to the ruling, Tesla’s directors failed to prove “that the compensation plan was fair,” resulting in the refusal to pay the money.
Musk’s Corporate Roles and Stake
With Musk’s 21.9% equity stake and influential corporate positions, the judge stressed Musk’s influence in the approval plan’s process.
“Superstar CEO” Musk
“In addition to his 21.9% equity stake,” the judge ruled, “Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions.”
Shareholder’s Legal Challenge
The lawsuit initiating this legal battle was filed by shareholder Richard Tornetta, who alleged a breach of “fiduciary duties” by Tesla’s board of directors.
Unprecedented Pay Package Scrapped
Musk’s 2018 compensation package from Tesla, a $56 billion deal, set a historic record, catapulting him to the title of the world’s wealthiest person.
Judicious Inquiry into Musk’s Earnings
Judge Kathaleen McCormick posed the question, “Was the richest person in the world overpaid?” as claimed by the plaintiff.
Influential Ties and Concerns
The judge expressed concerns over Musk’s extensive ties with the compensation committee, saying that Musk “controlled Tesla” due to his close relationship with committee chair Ira Ehrenpreis.
Musk Boosts Equity Through Ties
The judge also noted Musk’s ties with General Counsel Todd Maron, suggesting Musk influenced the decision for his compensation deal, boosting his equity in the company.
Musk’s Recalibration Analogy
McCormick likened Musk’s influence to a “self-driving” process, implying that he steered and recalibrated the compensation process at his discretion.
Call for Corrective Action
McCormick ruled in favor of rescission, “The plaintiff is entitled to rescission,” she wrote, claiming that the compensation offer came “at an unfair price.”
Collaboration for Closure
Parties involved were directed to collaborate on a final order, addressing all outstanding issues, including fees, to conclude this complex matter.
Silence from Involved Parties
Elon Musk and his legal representatives stayed silent on the court’s decision until he took to his social media platform to make a call to anyone who wished to incorporate a company in Delaware.
Musk’s Cautionary Tweet
Musk used X to warn against incorporating a company in Delaware after the ruling went against him for the $56 billion compensation fee.
Beware of Delaware
“Never incorporate your company in the state of Delaware,” Musk wrote as he sought his revenge on the court’s decision.
Proof Deficiencies in Stockholder Vote
Tesla and Musk’s legal team fell short of proving the stockholder vote’s full informativeness, with key details inaccurately described and crucial information omitted.
Musk’s Ongoing Influence
Despite owning around 13% of Tesla’s stock, Musk expressed the desire to increase his voting control to 25%, stating that he is “uncomfortable” without it.
The Future of Tesla?
In a recent online poll posted by Musk, he asked his faithful followers if he should incorporate Tesla in the city of Austin, Texas, due to the state’s business-friendly laws.
Abbott’s Approval
Due to Musk’s strong ties with Texas, Governor Gregg Abbott replied to the poll results, which voted in favor of the move, saying, “Elon, it’s over. The election desk is declaring a landslide victory for Texas.”
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The post Court Rejects Elon Musk’s $56 Billion Compensation Package first appeared on From Frugal to Free.
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