A Delaware judge invalidated billionaire Elon Musk’s $56 billion pay package from his electric car company Tesla on Tuesday, according to court documents.
Chancellor Kathleen St. Jude McCormick determined that Tesla’s board of directors failed to substantiate the justification for the compensation plan, which was tied to Musk’s performance as CEO, according to the ruling.
Musk had a decisive role in formulating the pay package, and the compensation committee and board members he negotiated with maintained significant personal connections to him.
“The concept of fairness calls for a holistic analysis that takes into consideration two basic issues: process and price,” the judge wrote.
“The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
The ties included decades-long personal and professional relationships, as well as a former divorce attorney “whose admiration for Musk moved him to tears during his deposition,” the judge wrote.
Moreover, Tesla shareholders who voted to approve the package were not completely aware of the information behind it as “the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process,” the judge asserted.
“The price was no better,” she continued. “In defense of the historically unprecedented compensation plan, the defendants urged the court to compare what Tesla ‘gave’ against what Tesla ‘got.’ This structure set up the defendants’ argument that the compensation plan was ‘all upside’ for the stockholders. The defendants asserted that the board’s primary objective with the compensation plan was to position Tesla to achieve transformative growth, and that Tesla accomplished this by securing Musk’s continued leadership.”
The package was over 30 times larger than Musk’s former package, according to the judge.
Tesla did not immediately respond to a request for comment.