By Jack Ewing and Peter Eavis
A Delaware judge ruled earlier this week in favor of Tesla shareholders who sued to block the pay package that helped make Elon Musk, the carmaker’s CEO, a billionaire many times over and the world’s wealthiest human.
“The process leading to the approval of Musk’s compensation plan was deeply flawed,” Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery said in the decision. She ordered that the contract that provided his record pay — currently worth about $50 billion — be voided.
A group of Tesla shareholders had challenged a stock options package that ended up giving Musk the right to acquire Tesla shares that were worth more than $70 billion when the stock price was higher. To receive the award, which was one of the largest of its kind and widely imitated by other corporations, Tesla had to meet certain revenue, profit and share price goals.
The lawsuit took on added significance after Musk’s acquisition of Twitter in 2022. He faced widespread criticism for spending time trying to overhaul Twitter while Tesla’s shares slumped and its growth slowed amid rising competition. One justification for Musk’s pay package at Tesla was that it was a way of keeping him focused on building cars.
The case also raised questions about Tesla’s corporate governance and whether the board, which includes several close friends of Musk and his brother, Kimbal, does anything to rein in Musk’s behavior. The lawsuit contended that Musk had played a large role in shaping his pay package.
The judge agreed. “In the final analysis,” she wrote in Tuesday’s decision, “Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price.”
Musk also testified during the trial, suggesting that his impact on the car industry justified his pay. “Tesla has had an immense effect on the world,” he said. “Not just that Tesla is making electric vehicles — we have been really the main reason why the rest of the car industry has moved toward sustainable, electric vehicles.”
The case was heard in Delaware because Tesla, like many companies, is incorporated there.