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A month ago

MUSK'S RECORD $56BN PAY DEAL REJECTED FOR SECOND TIME

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Finance

A month ago



Musk's record $56bn pay deal rejected for second time


Tesla CEO Elon Musk's record-breaking $56 billion pay package will not be reinstated, following a ruling by a Delaware court judge. This decision comes after months of legal disputes, despite the pay award receiving approval from both shareholders and directors earlier this summer. Judge Kathaleen McCormick reaffirmed her earlier ruling from January, suggesting that the Tesla board members were significantly influenced by Musk in their decision-making.


In response to the ruling, Musk took to X (formerly Twitter), stating, "Shareholders should control company votes, not judges." Tesla has announced plans to appeal, arguing that the ruling is "wrong." The company asserts that the decision undermines the rights of shareholders, criticizing the judgment as an indication that "judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners."


Judge McCormick highlighted the magnitude of the pay package, noting that it would have been the largest ever awarded to a CEO of a publicly traded company. She criticized Tesla for failing to demonstrate the fairness of the pay package, which was originally established in 2018. 


Elon Musk, who also leads X (formerly Twitter) and SpaceX, is currently recognized as the world's richest person, valued at approximately $350 billion according to the Bloomberg Billionaires Index. His prominence has extended him a platform to express his views on numerous issues, and his influence may further increase with Donald Trump's potential victory in the 2024 US presidential election, where he has been suggested to lead a new Department of Government Efficiency (referred to as Doge, reminiscent of a popular meme). Trump has claimed that this department would focus on "dismantling government bureaucracy, slashing excess regulations, cutting wasteful expenditures, and restructuring federal agencies."


Although a shareholder vote supporting Musk's pay package garnered 75% approval in June, Judge McCormick found the arguments presented by Tesla's lawyers to be "creative" but ultimately unconvincing. She emphasized that even if a shareholder vote could ratify such a decision, it would not have the desired effect in this instance.


The judge did award $345 million in fees to the shareholder who initiated the lawsuit, though she denied their request for $5.6 billion in Tesla shares. Legal experts expressed concerns that a ruling in favor of Musk could erode conflict of interest laws in Delaware. Charles Elson, from the University of Delaware's Weinberg Center for Corporate Governance, characterized the situation as problematic, noting that the board's lack of independence and the dominating influence of Musk contributed to an unreasonable pay package. He anticipates that Tesla may seek to establish a similar pay structure in Texas, where it relocated its legal base earlier this year.

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