A Delaware judge has rejected Elon Musk’s historic $56 billion pay package from Tesla, deeming it an unjustifiable sum unfair to shareholders. This decision led to a 2% drop in Tesla shares premarket, prompting speculation about potential governance changes. Critics argue that Tesla’s board has failed to oversee Musk’s actions, given his confrontations with regulators and involvement in multiple companies.
The nullification of the 2018 10-year pay agreement, valued around $51 billion, is the largest corporate pay package in the U.S. The judge questioned the necessity of the plan for Tesla’s goals and highlighted directors’ apparent loyalty to Musk. The ruling may influence Tesla’s governance overhaul, as the company faces growth concerns and reevaluates electric vehicle demand.
Musk’s lawyer has not responded to the ruling, and the decision can be appealed. The judge suggested collaboration between the challenging shareholder and Musk’s legal team to implement the decision. Tesla’s warning of slowing growth and Musk’s upcoming compensation negotiations add complexity to the situation.
The ruling challenges the legitimacy of Tesla’s board, with suggestions to replace directors for fair negotiations on a new pay package for Musk. Directors argued they paid to retain Musk’s focus on Tesla, but critics questioned the transparency of goals and suggested a duty to seek alternatives.
The pay package, consisting of stock option awards, allowed Musk to buy shares well below the market price, contributing to Tesla’s valuation surge. Musk’s demand for 25% voting control faces skepticism post-ruling. The decision underscores concerns about Tesla’s corporate structure and potential need for independent board members.
Critics argue that Tesla’s board, including Musk’s brother and Rupert Murdoch’s son, lacks independence due to close ties with the CEO. The ruling sparks debates about governance in technology companies, with calls to address Musk’s focus on side projects. The nullification marks a significant development in the ongoing discussion about executive compensation and corporate governance.
