In a landmark decision, Chancellor Kathaleen McCormick of Delaware’s Court of Chancery reaffirmed her earlier ruling to strike down Elon Musk’s $55.8 billion compensation package at Tesla, rejecting Tesla’s attempt to restore the deal through a shareholder vote.
Tesla’s June shareholder vote aimed to ratify the pay package, but McCormick ruled the effort invalid, citing “material misstatements” in documents shared with shareholders. She emphasized that such misstatements undermined the vote’s legitimacy and could not override her January decision.
“The motion to revise is denied,” McCormick stated, adding that Tesla’s arguments against her ruling contradicted established legal precedents.
Tesla has announced plans to appeal the verdict. On his social media platform, X, Musk argued, “Shareholders should control company votes, not judges,” reflecting his discontent with the judiciary’s intervention in corporate governance.
The court also awarded $345 million in attorney fees to the plaintiff’s legal team, a fraction of the $5.6 billion initially requested. McCormick acknowledged the fee request was technically valid under Delaware law but deemed it excessively large.
Musk’s compensation package, approved by shareholders in 2018, was designed to reward him for Tesla’s extraordinary growth. However, shareholder Richard Tornetta filed a lawsuit alleging the package was excessive, accusing Musk of “unjustified enrichment” and claiming Tesla’s board lacked independence in approving the plan.
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Tornetta argued that Musk dictated the terms of the compensation package and failed to ensure its fairness. In his defense, Musk maintained that the plan was a necessary incentive to transform Tesla from an industry underdog into a global leader in electric vehicles.
The Delaware Court of Chancery, a key institution for American corporate law, has seen increased scrutiny due to this case. Musk has amplified calls for companies to consider leaving Delaware, reposting messages on X that challenge the state’s corporate governance framework.
As Tesla prepares to appeal, the case continues to be a focal point in debates over executive compensation and corporate governance. The outcome could set a precedent for how boards of directors and CEOs navigate shareholder interests and legal oversight in the future.
This ruling not only spotlights Musk’s controversial leadership style but also underscores the balance courts seek to maintain between corporate autonomy and accountability.
