A US judge on Monday upheld her decision to reject Elon Musk’s massive US$55.8 billion compensation package at Tesla Inc, denying an attempt to restore the pay deal through a shareholder vote.
In a court filing, Delaware Chancery Court Chief Judge Kathaleen McCormick ruled that Tesla’s attempt to ratify Musk’s compensation package through a June shareholder vote could not override her January decision striking down the package as excessive and unfair to shareholders.
McCormick found multiple flaws in Tesla’s ratification attempt, including “material misstatements” in documents provided to shareholders about the effect of their vote.
Photo: Reuters
“The motion to revise is denied,” McCormick wrote.
“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,” she added.
In a statement on Musk’s X social media platform, Tesla said it would appeal the verdict.
“Shareholders should control company votes, not judges,” Musk said in a separate post.
The court also awarded US$345 million in attorney fees, significantly less than the US$5.6 billion requested by the lawyers of plaintiff Richard Tornetta, a Tesla shareholder.
While acknowledging their calculation method was technically sound under Delaware law, which bases fees on the percentage of benefit achieved, McCormick ruled that such a large award would constitute an excessive windfall.
Shareholders originally backed the Musk compensation plan in March 2018 that was specifically designed to reward the 53-year-old founder for Tesla’s significant growth. However, in a lawsuit, Tornetta accused the defendants of failing in their duties when they authorized the pay plan and alleged that Musk dictated his terms to directors, who were not sufficiently independent from their star CEO.
He also accused Musk of “unjustified enrichment” and asked for the annulment of a pay program that helped make the entrepreneur the richest man in the world.
During a trial in 2022, Musk countered that investors in Tesla were some of the “most sophisticated in the world” and able to keep tabs on his management.
Tesla had been the laughingstock of the auto industry, and it was only the massive success of the company’s Model 3 that turned things around, he said.
Musk insisted that he played no role in producing the package nor discussed his deal with the board members, some of them close friends, who signed off on it.
The Delaware Court of Chancery has been a pillar of US capitalism for more than a century and is the jurisdiction where about two-thirds of American Fortune 500 companies are registered.
Musk on Monday reposted other users’ X posts calling for companies to leave Delaware.
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