Regulation

Elon Musk’s $56 Billion Tesla Pay Deal Struck Down Again: Details

Published

3 weeks ago

December 3, 2024

A Delaware Court judge has once again rejected Elon Musk’s $56 billion pay package. The decision, issued by Judge Kathaleen McCormick, strikes down the compensation agreement despite shareholders’ attempt to “re-ratify” the deal. McCormick’s ruling follows a previous judgment in January, where the pay package was invalidated. The judge’s decision adds another layer to the ongoing legal battle, with Tesla expected to pursue an appeal.

Elon Musk’s $56B Tesla Compensation Deal Invalidated: Court Ruling Details

According to a Monday court filing, Judge Kathaleen McCormick has denied the tech company’s request to revise her earlier decision regarding Elon Musk’s pay package. The legal team for Tesla had argued that the recent shareholder vote to “re-ratify” the deal addressed the court’s concerns from the first ruling.

However, McCormick rejected this argument, citing that despite the vote, the pay package remained problematic.

The judge maintained that the CEO’s compensation deal was influenced by his power over the board of directors, leading to terms that were not “entirely fair.” In her opinion, Tesla had failed to ensure that investors were fully informed before agreeing to the pay package. McCormick reiterated that while the board could have chosen an appropriate amount of compensation, it capitulated to Elon Musk’s terms, which the court found to be excessive.

The judge added,

“There were undoubtedly a range of healthy amounts that the Board could have decided to pay Musk. Instead, the Board capitulated to Musk’s terms and then failed to prove that those terms were entirely fair.”

Moreover, the legal setback also carries a financial penalty for Tesla. In addition to the ruling on the compensation package, the court awarded the plaintiff’s attorneys a $345 million fee, which the tech company must pay in cash or shares.

In response, the Tech giant said,

“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”

Tesla To Appeal Ruling At Delaware Supreme Court

Following McCormick’s decision, the tech company will appeal the ruling to the Delaware Supreme Court. The company had hoped that the re-ratification by shareholders would allow the deal to proceed, but McCormick’s decision has created additional legal hurdles.

A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth.
The court’s decision is wrong, and we’re going to appeal.
This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware…
— Tesla (@Tesla) December 2, 2024
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The decision also raises broader questions about corporate governance and executive compensation in the tech industry. The outcome of the appeal could set an important precedent for future cases involving large executive pay packages.

In other legal developments, the tech giant CEO filed a lawsuit against OpenAI and Microsoft, accusing the companies of engaging in anti-competitive practices. The lawsuit, filed in the U.S. District Court for the Northern District of California, claims that OpenAI’s shift to a for-profit model undermines competition in the AI sector. Elon Musk’s legal team argues that OpenAI, backed by a $13 billion investment from Microsoft, has been using its influence to suppress competitors, including xAI.

Despite the ongoing legal challenges surrounding his pay package, Musk experienced a positive outcome in a separate legal battle. A U.S. District Court judge recently ruled in Musk’s favor in a case involving the U.S. Securities and Exchange Commission (SEC). The SEC had sought to sanction Elon Musk over his handling of the X acquisition, but the court denied the request. The court noted that Elon Musk had already reimbursed the SEC for costs related to a missed meeting.