A recent ruling by a Delaware judge has invalidated a $55.8 billion compensation package for Tesla CEO Elon Musk. The decision came after a shareholder filed a lawsuit in 2018, arguing that Musk was overcompensated. The pay package, which was the largest in US corporate history, was agreed upon in 2018 and was to be paid out over 10 years based on certain targets being met. After hitting all the targets by 2023, Musk became the world’s richest man. Although Musk may appeal the ruling, his status as the richest person has now been taken over by Bernard Arnault, the CEO of LVMH.
The package, which was controversial from the beginning, allowed Musk to receive stock awards equivalent to about 1 percent of Tesla’s equity whenever the company achieved specific operational and financial goals. These goals included increasing Tesla’s market cap from $59 billion to $650 billion within a decade, as well as meeting targets related to the company’s share price and profitability. The compensation package dramatically increased Musk’s personal worth and made him the highest-paid CEO in the US.
Shareholders argued that they were not adequately informed about how easily Tesla could achieve its financial goals when they voted on the package. They claimed that Musk, who already owned more than 411 million shares, did not need further incentives. They also questioned the independence of the board, as Musk had personal and business relationships with some of its members.
The ruling by Judge Kathaleen McCormick criticized Tesla’s leadership for not adequately informing shareholders about the amount of the compensation package. She described the sum as “unfathomable.” The judge also stated that Tesla’s board failed to protect the interests of shareholders and did not critically evaluate whether the package was necessary to retain Musk and achieve the company’s goals.
As a result of the ruling, Tesla will have to submit a new pay package to Judge McCormick for approval. Musk’s lawyers may choose to appeal the decision, but it is currently unclear if they will do so.
In the meantime, Musk took to social media to conduct a poll among users of his platform X, asking if Tesla should change its state of registration to Texas, where the
