Musk Record Tesla Pay Plan Rejected Again By Delaware Judge

Elon Musk’s record-setting Tesla Inc. pay package was again rejected by a Delaware judge even after shareholders supported reinstating it.

Despite the June 13 shareholder vote at the company’s annual meeting, Delaware Chancery Court Judge Kathaleen St. J. McCormick decided to stick with her original finding in January that the company’s board was too much under the influence of the billionaire entrepreneur when it adopted the plan in 2018. 

The stock options package was initially worth $2.6 billion and spiked to $56 billion by the time the judge canceled it. The package was worth $101.5 billion at Monday’s closing price.

McCormick’s ruling striking down the highest-ever pay arrangement for a US corporate executive could take a giant bite out of Musk’s wealth. Even without the payout, he remains the world’s richest person. Tesla shares fell 1.4% in after-hours trading.

The ruling comes just after Musk’s wealth hit an all-time high — surpassing the previous record of $340.4 billion set in November 2021 — thanks to a Tesla stock rally following the presidential election and a new funding round for his artificial intelligence startup. 

Musk, 53, spent much of October campaigning for Donald Trump, including speaking at a Madison Square Garden rally in New York City about a week before the election. The president-elect has tapped Musk to co-lead a cost-cutting effort that the new administration is calling “DOGE,” or the “Department of Government Efficiency.”

Tesla and its board, which includes Musk, didn’t immediately respond to a request for comment.

In Monday’s ruling, McCormick awarded $345 million to the lawyers who fought Musk and Tesla to kill the pay plan.

While that amount was far less than the attorneys’ request to be compensated with 29 million Tesla shares — more than $10 billion at the company’s current share price — it’s still among the largest lawyer paydays in the history of US litigation.

“We hope that the Chancellor’s well-reasoned decision will end this matter for the shareholders of Tesla,” said lawyers at the firm of Bernstein Litowitz Berger & Grossmann who won the ruling on behalf of shareholder Richard Tornetta.

Musk now has 30 days to decide whether to appeal McCormick’s ruling under Delaware law. Unlike the US Supreme Court, the state’s highest court reviews all appeals of lower-court rulings. 

The billionaire is expected to contest McCormick’s finding that Tesla directors awarded him excessive compensation because they were handcuffed by conflicts of interest. He had previously said he needed a bigger stake in Tesla to maintain control of the electric-car maker and expand further into artificial intelligence. 

“There were undoubtedly a range of healthy amounts that the board could have decided to pay Musk,” McCormick wrote in her 101-page decision. “Instead, the board capitulated to Musk’s terms.”

The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).