‘An unfathomable sum’: US court slams Elon Musk’s $56-billion compensation; Tesla CEO reacts

The Delaware Court of Chancery’s Judge Kathaleen McCormick has termed CEO Elon Musk’s $56-billion compensation from Tesla as “an unfathomable sum”. This ruling could upend the heftiest corporate remuneration in the US. The electric vehicle maker’s directors, captivated by Musk’s “superstar appeal” or the company’s “rhetoric of all upside”, might not have critically evaluated the necessity of such a massive package for retaining Musk, as per Judge McCormick.

“The board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” Judge McCormick noted.

Tesla’s stocks dipped by 3% post-announcement. McCormick has instructed the disputing parties to craft an actionable order based on her decision, hinting at potential appeals. The legal team representing Elon Musk has yet to comment publicly. However, Musk’s satirical response on X (formerly Twitter) apparently critiqued Delaware’s corporate environment.

“Never incorporate your company in the state of Delaware,” he wrote.

Richard Tornetta, the Tesla shareholder who initiated the 2018 lawsuit, celebrated the verdict. “Good day for the good guys,” Reuters quoted him as writing in an email.

His legal squad argued the board’s failure to present a more modest package or consider a different CEO. They contended that the board’s expectations were not as tough as portrayed, easing Musk’s path to the colossal pay.

Tesla defends Elon Musk’s package

During the trial, Tesla’s leadership defended the package. It stressed its role in securing Musk’s focus on the company. Musk owns about 13% of Tesla. He earlier said he was uncomfortable in leading the company without substantial voting control. The court’s critique of the board’s process casts doubt on Musk’s demand for a 25% stake.

Musk, during the trial, linked the compensation to his vision of interplanetary travel, particularly Mars colonisation. His wealth, significantly tied to this deal, stood at $210.6 billion, per Forbes.

The compensation, structured as stock options contingent on escalating targets, required Musk to retain acquired stocks for a minimum of five years. Musk achieved all 12 performance targets. The company’s valuation soared to a peak of $1 trillion in 2021, up from $50 billion at the deal’s inception.

(With Reuters inputs)

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Published: 31 Jan 2024, 06:53 AM IST

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