A lawcourt in Delaware has supported Tesla shareholders in their lawsuit against Elon Musk, declaring his $55 billion CEO compensation plan null and void.
It is not yet clear how this situation will unfold, but Musk could potentially have to return billions of dollars worth of Tesla shares.
In 2018, Tesla shareholders backed a historic new CEO compensation package for Elon Musk, which could amount to $55 billion if Tesla reached exceptional growth in valuation and profits.
However, some shareholders claimed that Musk unfairly secured this compensation plan by misleading them about its independence from the board.
Their complaint led to a protracted trial in Delaware in 2022 before the judge finally issued a ruling. Musk has mentioned another CEO compensation plan at Tesla, waiting on the judge’s decision before moving ahead.
This posttrial decision enters judgment for the plaintiff, finding that the compensation plan is subject to review under the entire fairness standard, the defendants bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.
In summary, the judge found that “Musk controlled Tesla” at the time the compensation package was put together.
The collection of features characterizing Musk’s relationship with Tesla and its directors gave him enormous influence over Tesla.
An important part of this case hinged on the judge agreeing with the plaintiff that the board members behind the package were not “independent”.
After hearing from both sides, the judge found that there was “no meaningful negotiation over any of the terms of the plan.”
In this litigation, the defendants touted as concessions certain features of the compensation plan—a five-year holding period, an M&A adjustment, and a 12-tranche structure that required Tesla to increase market capitalization by $100 billion more than Musk had initially proposed to maximize compensation under the plan.
The story is still developing as Musk is likely to appeal this judgment.
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