A judge ruling on Elon Musk's ~$55 billion CEO package, which some Tesla shareholders say was obtained without following proper governance rules, has decided to reject Tesla's attempt to get it back through a shareholder vote.
The Delaware Supreme Court could be next.
In 2018, Tesla shareholders voted for Elon Musk to receive a historic new CEO compensation package worth $55 billion to executives if Tesla achieved impressive growth in sales and profitability, which it did.
However, some shareholders argue that Musk got the compensation plan unfairly high by misleading shareholders about the fact that the plan was put together by an independent board and negotiated in good faith.
They filed an appeal in Delaware court. The case went to trial in 2022, but it took a long time for the judge to issue his decision.
Earlier this year, the Chief Judge of the Delaware Court of Appeals, Kathleen St. J. McCormick, sided with the shareholders after testimony from all involved in the pay negotiations, or lack of negotiations, and a thorough investigation of how it happened.
He ruled that Musk was in charge of the board when he gave him a pay package while the board members who approved the package were also given historically large bonuses, which he eventually returned in part as part of a separate litigation agreement. excessive compensation.
McCormick found many management irregularities, including the fact that the board members who allegedly negotiated the package were not independent of Musk, and even his personal lead in compensation was his divorce lawyer, who he had recently hired to be general counsel at Tesla.
The judge struck down the compensation package, which included more than $50 billion in Tesla stock options that the CEO had yet to exercise. He called on Tesla to go back to the drawing board, renegotiate the pay package honestly, and deliver it fairly to shareholders.
Instead, Tesla disagreed with the judge's findings on the management issues and decided to present the same package while including the judge's decision in a revised proposal and Tesla shareholders to vote on it again.
In June, Tesla shareholders voted to re-approve the package, albeit with a lower percentage than the original vote.
Tesla's legal team believes the vote will “authorize” the compensation package and force the judge to reverse its decision to overturn the pay package. However, both Tesla's lawyers and many corporate law experts agreed that this would require an entirely new approach to verification.
McCormick heard both sides this August, and we expected his decision by the end of the year.
Today, the judge issued his decision and again supported Tesla's argument:
“A large and talented group of defense companies created the argument for confirmation, but their unprecedented views contradict many forms of established law.”
Aside from the verification issue, the judge also said he believed Tesla also misrepresented the situation to shareholders in statements made about the new vote:
“Even if a shareholder vote could have an affirmative effect, it could not do so here due to numerous errors,” the proxy statement said.
In addition to his decision on compensation, he also ruled against the shareholders' lawyers, who were asking for an unreasonable sum of $5 billion from Tesla as their legal fees. Instead, he gave them $345 million.
Tesla is likely to appeal the decision, which could be appealed to the Delaware Supreme Court.
Electrek's Take
As I wrote last summer, the lawsuit over Elon Musk's compensation package will haunt Tesla for years. Even if you believe that Musk deserves this package, Tesla's way of returning it was boneheaded and did not follow the law as I, and it seems that the judge and many experts in Delaware corporate law, understand it.
Tesla, and especially Elon Musk, it's hard to separate the two lately, which is part of the problem, they show no intention of dealing with their management issues.
Let's be clear: Elon can easily get paid here. Even if it is very close to this amount. However, it should do it with proper governance and respect for the process.
Instead, Elon chooses to lie to shareholders and present this situation as politically motivated legislation. It's nonsense.
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