Elon Musk lost in court for the second time over his Tesla pay package, failing to convince a Delaware judge to reverse her earlier ruling.

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Simone Del Rosario Business Correspondent

Business

Delaware judge rejects Elon Musk’s Tesla pay package for second time

Dec 3

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Brent Jabbour (Senior Producer), Emma Stoltzfus (Video Editor)

Elon Musk lost in court for the second time over his pay compensation. The Tesla CEO failed to convince a Delaware judge to reverse her earlier ruling, which nullified his $56 billion pay package.

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“A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth. The court’s decision is wrong, and we’re going to appeal,” Tesla said in a post on X.

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Tesla’s promised appeal will bring the case to the Delaware Supreme Court.

“Shareholders should control company votes, not judges,” Musk responded to the ruling.

Shareholders should control company votes, not judges https://t.co/zRsWGjC2hG
— Elon Musk (@elonmusk) December 3, 2024

“Procedure protects everyone, the majority and the minority,” said Charles Elson, a leading authority in Delaware on corporate governance and executive compensation. “If you don’t protect minority investors, then you’re going to lose their investment.”

“There is no two sets of law, one for all of us and then a special set for executive superstars,” Elson continued. “It’s all the same, and [the judge] applied the law exactly as it should have been applied.”

Delaware Chancellor Kathaleen McCormick initially voided Musk’s pay plan in January 2024. It was the largest public company compensation in U.S. history.

A Tesla shareholder sued, saying it was excessively high and not in the company’s best interest.

McCormick agreed with her ruling and questioned the independence of Tesla’s board. That ruling, though, had a cascading effect.

Following the initial ruling, Musk took to X, saying, “Never incorporate your company in the state of Delaware.”

Delaware has become America’s corporate home with about 2 million businesses. Companies outnumber people 2-to-1.

In June, Tesla shareholders voted to move its incorporation to Texas, where Tesla is headquartered. They also overwhelmingly approved Musk’s original, challenged compensation plan in the same vote.

The vote was not likely to change Musk’s legal woes, but the company attempted to use it anyway. Six months later, McCormick held fast to her initial ruling despite four times as many shareholders voting for the pay plan than against.

“She found that this package was unfair to the company, [that it] was a gift, effectively, of assets to Mr. Musk. And once that’s the case, you can’t give away company money without a corporate purpose without everyone approving of it,” Elson explained.

For the second hearing on Musk’s compensation package, McCormick questioned the timing of the shareholder vote, which occurred after she had already ruled on the case.

“The whole thing was very strange. It was an odd way of approaching it,” Elson said.

He said the best approach would have been to institute an independent board of directors and start the process over.

Musk’s initial compensation package was built on performance and valuation goals. While it was worth $56 billion at the time in question, Tesla has seen a big boom from the Trump trade. Since the stock rally following Donald Trump’s election victory, Reuters reported the initial package is now worth more than $100 billion.

Tesla stock fell more than 2% Tuesday, Dec. 3, after the news that McCormick rejected Musk’s pay package again.

Tags: compensation, Delaware, Elon Musk, Kathaleen McCormick, shareholder, Tesla, Texas

Simone Del Rosario: Elon Musk lost in court for the second time over his pay compensation.

The Tesla CEO failed to convince a Delaware judge to reverse her earlier ruling on his $56 billion pay package.

Tesla said in a post on X, “A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth. The court’s decision is wrong, and we’re going to appeal.”

The next stop is the Delaware Supreme Court.

Musk also weighed in, saying, “Shareholders should control company votes, not judges.”

Charles Elson: Procedure protects everyone, the majority and the minority, and if you don’t protect minority investors, then you’re going to lose their investment. And if you didn’t need their money, why would you have taken it to begin with?

Simone Del Rosario: Charles Elson is a leading authority on corporate governance and executive compensation.

Charles Elson: There is no two sets of law, one for all of us and then a special set for executive superstars. It’s all the same, and she applied the law exactly as it should have been applied.

Simone Del Rosario: She is Delaware Chancellor Kathaleen McCormick, who initially voided Musk’s pay plan in January. It was the largest public company compensation in U.S. history, and a Tesla shareholder sued, saying it was excessively high and not in the company’s best interest. McCormick agreed in her ruling and questioned the independence of Tesla’s board. That ruling, though, had a cascading effect.

Musk posted on his social media site, “Never incorporate your company in the state of Delaware.” Delaware is America’s corporate home with about 2 million businesses. Companies outnumber people 2-to-1.

But there’s at least one fewer company today. In June, Tesla shareholders voted to move incorporation to Texas, where Tesla is headquartered. In the same shareholder vote, they overwhelmingly approved Musk’s original, challenged compensation plan.

We reported at the time that the vote wouldn’t change Musk’s legal woes. And six months later, McCormick held fast to her initial ruling, despite four times as many shareholders voting for the pay plan than against.

Charles Elson: She found that this package was unfair to the company. Was a gift, effectively, of assets to Mr. Musk. And once that’s the case, you can’t give away company money without a corporate purpose, without everyone approving of it.

Charles Elson: The idea that the majority approves, well, the majority had to be appropriately informed, and it had to have taken place at the appropriate time. It didn’t. It took place after she had ruled. The whole thing was very strange. It was an odd way of approaching it. I think the best way to have approached it would have A) to have an independent board of directors who are not beholden to Mr. Musk, as she found. And number two, to start the process over.

Simone Del Rosario: Musk’s initial compensation package was built on performance and valuation goals. While it was worth $56 billion at the time it was struck down, Tesla has seen a big boon from the Trump trade. Since the stock rally following Donald Trump’s election victory, Reuters says the initial package is now worth more than $100 billion.

Tesla stock fell more than 2% Tuesday on news a judge rejected Musk’s pay package once again.

We did a deep dive into whether Elon Musk is a threat to Delaware’s core business…you can watch it by searching for this story at SAN.com or the Straight Arrow News app.