On Monday a US judge justified her decision to reject Elon Musk’s massive $55.8 billion compensation package at Tesla, denying an attempt to restore the pay deal through a shareholder vote.
In a court filing, Chancellor Kathleen McCormick of Delaware’s Court of Chancery ruled that Tesla’s attempt to ratify Musk’s compensation package through a June shareholder vote could not override her January decision striking down the package as excessive and unfair to shareholders.
McCormick identified several issues with Tesla's ratification attempt, including “material misstatements” in the documents presented to shareholders regarding the impact of their vote.
“The motion to revise is denied,” McCormick wrote.
“The large and talented group of defence firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” she added.
In a statement on Musk’s X social media platform, Tesla said it would appeal the verdict.
“Shareholders should control company votes, not judges,” said Musk, in a separate post.
The court also granted $345 million in attorney fees, a substantial reduction from the $5.6 billion sought by the attorneys representing plaintiff Richard Tornetta, a Tesla shareholder.
Although the calculation method was technically correct under Delaware law, which bases fees on the percentage of the benefit achieved, McCormick determined that such a large award would result in an excessive windfall.
The specific design which was to be rewarded to the 53-year-old founder for Tesla’s significant growth was originally backed by shareholders of the Musk compensation plan in March 2018.
But in a lawsuit, Tornetta accused the defendants of failing in their duties when they authorized the pay plan and alleged that Musk dictated his terms to directors, who were not sufficiently independent from their star CEO.
He also accused Musk of “unjustified enrichment” and asked for the annulment of a pay program that helped make the entrepreneur the richest man in the world.
During a 2022 trial, Musk argued that Tesla's investors were among the "most sophisticated in the world" and capable of closely monitoring his management. He pointed out that Tesla had once been ridiculed by the auto industry, but the success of the Model 3 had changed the company's fortunes.
Musk also denied any involvement in creating the compensation package or discussing it with the board members, some of whom were close friends, who ultimately approved the deal.
The Delaware Court of Chancery, a cornerstone of U.S. capitalism for over a century, is the legal home to about two-thirds of the country's Fortune 500 companies.
On Monday, Musk shared posts on X from other users advocating for companies to leave Delaware.
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