On June 16, 2023, Elon Musk, the owner of X, formerly known as Twitter, and the CEO of SpaceX and Tesla, attends the Viva Technology conference, which is devoted to innovation and entrepreneurs, at the Porte de Versailles exhibition center in Paris, France.
Reuters, Wilmington, January 30 Elon Musk's record-breaking $56 billion Tesla (TSLA.O) bonus package was thrown down by a Delaware judge on Tuesday, describing it as "an unfathomable sum" that was unjust to shareholders.
In extended trading, Tesla's shares fell almost 3%, and some investors took advantage of the decision in the hopes that it would force Tesla to restructure its governance.
The CEO of Tesla, who has made headlines for his aggressive style and ability to lead many firms while battling authorities, has come under fire from the board for not having adequate control.
The decision, which is subject to appeal, voids the biggest compensation package in corporate America. The judge concluded that Musk, who is now listed as the richest person in the world by Forbes magazine, was the target of the directors who negotiated the share-based remuneration.
"Swept up by the rhetoric of 'all upside,' or perhaps starry-eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?" Kathleen McCormick of Delaware's Court of Chancery.
The Tesla shareholder who objected to the remuneration plan was instructed by McCormick to collaborate with Musk's legal team in creating an order that would carry out the ruling. Once the parties agree on a final ruling and the expenses for the shareholder's attorneys, which Tesla will pay, it can be appealed to the Delaware Supreme Court.
The decision is made at a time when the electric vehicle sector is reassessing demand and Tesla is warning of slowing growth. Under Musk, Tesla has grown to be the most valuable car company in the world, but a large portion of its worth is predicated on anticipated future innovations like self-driving robots.
"Never incorporate your company in Delaware," Elon Musk wrote on the social media site X, which he acquired in 2022.
An email requesting a comment was not immediately answered by Musk's attorney.
"Good day for the good guys," said an email sent in 2018 by Tesla stakeholder Richard Tornetta's lawyer, Greg Varallo.
"The incredible size of the biggest compensation plan ever - an unfathomable sum - seems to have been calibrated to help Musk achieve what he believed would make 'a good future for humanity'," McCormick wrote in her 201-page report.
During the week-long compensation trial in November 2022, Musk stated in his testimony that the funds would be utilized to fund interplanetary travel.
He testified, "It's a way to get humanity to Mars." "So Tesla can assist in potentially achieving that."
After taking into consideration the cost for Musk to exercise the options, the 10-year compensation deal that Tesla and Musk agreed in 2018 would be valued at approximately $51 billion based on Tuesday's closing price for Tesla shares.
That is around 25% of his $210.6 billion wealth, according to Forbes magazine. Based on current rankings, he is presently valued at $2 billion more than LVMH (LVMH.PA), according to new tab CEO Bernard Arnault of France and his family.
The decision is made at the same time as Tesla is getting ready for more salary talks with the CEO. This month, Musk stated in a post on X that he couldn't lead Tesla without having 25% of the voting power. At the time, the billionaire controlled around 13% of the business, and he declared that talks would not begin.
Her description of the boarding process, along with the directors' evidence, makes it impossible for his most recent demand of 25% to be granted. remarked Boston College Law School professor Brian Quinn. "It's dead on arrival."
Many of the directors on Tesla's board, including current members James Murdoch, the son of media magnate Rupert Murdoch, and Kimbal Musk, Elon Musk's brother, lacked independence, according to McCormick's article. She said that Ira Ehrenpreis and Robyn Denholm, two other current directors of Tesla, lacked independence in their pay decisions.
Eight people make up the board at the moment, including the CEO.
The decision indicated the business needed to replace at least three directors with independent board members before it could negotiate a new compensation plan for Musk, according to Ross Gerber, president and CEO of Gerber Kawasaki Wealth & Investment Management and a Tesla investor, who spoke with Reuters.
"Essentially, the entire corporate structure of Tesla has been deemed inappropriate for a public company," Gerber stated.
During the trial, Tesla directors contended that the firm was making payments to guarantee that one of the most dynamic entrepreneurs globally continued to focus on the electric vehicle manufacturer. The package was deemed "a great deal for shareholders" by Antonio Gracias, a director of Tesla from 2007 to 2021.
Attorneys for Tornetta contended that the Tesla board never informed investors that the objectives were more doable than
The plaintiff's legal team further contended that Musk should have been obliged to work full-time at Tesla rather than being free to concentrate on side ventures like SpaceX and X, and that the board ought to have either looked for another CEO or offered a lower compensation package.
The founder of Nia Impact Capital, an investment firm that supports Tesla, Kristin Hull, said that the board is obedient to Musk, a situation that is typical of other large tech firms. She described the state of affairs as "the bro-show."
The remuneration package included stock option awards totaling nearly 304 million shares, which Musk may purchase for roughly $23.33 a share, far less than the Tuesday closing price of $191.59. As Tesla experienced growing financial difficulties, Musk received all 12 tranches of stock option awards.
There was no wage guarantee for him.
Tesla's worth surged from $50 billion at the time of the package negotiation to a temporary peak of $1 trillion in 2021.
According to a 2022 projection by CEO pay research firm Equilar's Amit Batish, Musk's compensation package was around six times greater than the total compensation of the 200 highest-paid executives in 2021.
Editing by Anna Driver and Jamie Freed; reporting by Tom Hals in Wilmington, Noel Randwich and Hyun Joo Jin in San Francisco, Jody Godoy in New York, Kanishka Singh, Eric Beech, and Dan Whitcomb in Washington, and Ross Kerber in Boston