Unexpectedly, a Delaware judge has declared Elon Musk’s enormous $56 billion bonus package from Tesla void, calling it a “unfathomable sum” that unfairly benefits the CEO at the expense of shareholders. The ruling follows a complaint brought by Richard Tornetta, a stakeholder in Tesla, who claims the electric vehicle maker violated its fiduciary duties by authorizing a deal without conducting thorough negotiations or oversight.
Judge Kathaleen McCormick highlighted Musk’s close ties with the directors responsible for negotiating his pay, asserting that there was no genuine negotiation over the terms of the controversial plan. Musk’s significant ownership stake of 21.9 percent in Tesla during the negotiation further raised concerns, as he stood to gain $10 billion for every $50 billion increase in market capitalization. The judge criticized the board’s failure to question the necessity of the massive pay package for Tesla to retain Musk and achieve its goals.
The court decided in Tornetta’s favor, giving him a “rescission” and directing Tesla and its stockholders to renounce the agreement. Musk’s team is still able to appeal the ruling, though. The decision is significant for Musk, who has been selling off Tesla shares to pay for the purchase of Twitter, which is now known as X. Musk, who currently owns around 13 percent of Tesla, has stated that he hopes to eventually own 25 percent of the business as he positions himself as a leader in robotics and artificial intelligence.
Following the court’s ruling, Musk responded on Twitter, cautioning against forming businesses in Delaware and asking his followers to vote on whether Tesla ought to move its state of incorporation to Texas, the location of its headquarters. The legal dispute surrounding Musk’s enormous compensation package highlights the constant scrutiny and difficulties prominent executives have in negotiating pay packages that serve the interests of shareholders.