A Delaware judge has ruled that Elon Musk’s record-setting $56 billion pay package will not be reinstated, marking the second rejection of the deal amid ongoing legal disputes.
Judge Kathaleen McCormick’s decision comes after months of litigation, despite the pay package receiving approval from shareholders and directors during the summer. She upheld her earlier ruling from January, stating that board members had been unduly influenced by Musk in the decision-making process.
In response to the ruling, Musk took to X, expressing, “[S]hareholders should control company votes, not judges.” Tesla announced its intention to appeal the decision, labeling it as “wrong.” The company argued that the ruling implies that “judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”
Judge McCormick noted that the proposed pay package would have been the largest in history for a CEO of a publicly traded company. She stated that Tesla failed to demonstrate the compensation, dating back to 2018, was fair.
Although a shareholder vote in June passed with 75% approval, the judge rejected the appropriateness of the amount, characterizing Tesla’s lawyers’ arguments as “creative.” She asserted, “Even if a stockholder vote could have a ratifying effect, it could not do so here.”
Additionally, the judge ruled that the Tesla shareholder who initiated the case against Musk and Tesla should receive $345 million in fees but not the requested $5.6 billion in Tesla shares.
Legal experts noted that a ruling in favor of Musk could have undermined conflict of interest laws in Delaware. Charles Elson, a professor at the University of Delaware’s Weinberg Center for Corporate Governance, emphasized, “The idea of conflict rules is to protect all investors, not just minority investors.” He praised Judge McCormick’s reasoning, stating, “You had a board that wasn’t independent, a process that was dominated by the CEO, and a package that was way out of any sort of reasonable bounds.”
Elson speculated that Tesla may attempt to reintroduce a similar pay package in Texas, where the company relocated its legal operations earlier this year following the original pay ruling.
