A Delaware judge on Tuesday invalidated the $56 billion pay package Tesla CEO Elon Musk ruled that the company’s board had failed to demonstrate “that the compensation plan was fair” or provide much evidence that they even negotiated with him.
Tesla’s stock price slipped about 3% in after-hours trading on Tuesday after news of the decision in the lawsuit filed by Richard Tornetta, a shareholder in the electric car maker.
Chancery Court Registrar Kathaleen McCormick asked the parties in the lawsuit to issue a final order directing Musk to repay compensation received under the plan.
Musk can appeal the decision to the Delaware Supreme Court.
The pay package Tesla awarded Musk in 2018 was the largest compensation plan in the history of a public company, McCormick noted in her 200-page ruling.
The package made the Tesla and SpaceX boss a hundred billionaire and the richest person in the world.
This plan offered Musk the chance to secure 12 tranches of Tesla stock options that would vest if the company’s market capitalization increased by $50 billion and Tesla met a revenue target.
“Was the richest person in the world overpaid?” McCormick asked in her decision.
“The shareholder plaintiff in this derivative lawsuit says so. He claims that the directors of Tesla, Inc. breached their fiduciary duties by granting Elon Musk a performance-based stock compensation plan.”
“Ultimately, Musk initiated an autonomous driving process and readjusted the speed and direction along the way at his own discretion,” the judge wrote. “The process came at an unfair price. And through this litigation, the plaintiff is demanding a recall.”
McCormick ruled that Tornetta proved that Musk “controlled Tesla” and that the process that led to the board’s approval of his compensation was “deeply flawed.”
She wrote that Musk had “extensive relationships” with the people who negotiated the package for Tesla, including members of management “who were beholden to Musk,” including general counsel Todd Maron, his former divorce lawyer.
“There is no better evidence of Musk’s status as a transactional controller than the board’s attitude toward Musk during the process leading to the grant,” McCormick wrote.
“Simply put, neither the compensation committee nor the board acted in the best interests of the company when negotiating Musk’s compensation plan. In fact, there is little evidence of negotiations,” she wrote.
“Instead of negotiating against Musk with a third-party mindset, the compensation committee worked with him, almost like an advisory board.”
Musk did not immediately respond to a request for comment.
But in a tweet late Tuesday afternoon, Musk wrote, “Never incorporate your company in the state of Delaware.”
In a later tweet, he launched a poll asking, “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?”
Tornetta’s attorney, Greg Varallo, said in a statement: “We are enormously grateful for the court’s thorough and exceptionally well-reasoned decision to reject the Tesla board’s absurdly excessive pay package for Musk.”
“The court’s hard work will directly benefit Tesla investors, who will see the dilution from this gigantic pay package eliminated,” Varallo said.
McCormick’s ruling was based on the finding that Musk, not his board of directors and shareholders, controlled Tesla, at least when it came to the issue of setting his compensation.
The judge wrote: “In addition to his 21.9% ownership stake, Musk was the paradigmatic ‘superstar CEO’, holding some of the most influential corporate positions (CEO, chairman and founder) and maintaining close relationships with the directors charged with negotiating.” on behalf of Tesla and dominated the process leading to the board’s approval of its compensation plan.”
Tesla and Musk’s attorneys, the court ruled, “failed to demonstrate that the shareholder vote was fully informed because the proxy statement falsely described key directors as independent and misleadingly omitted details about the process.”
Earlier this month, Musk began seeking 25 percent voting control of Tesla.
He currently owns about 13% of the company’s shares.
“I am uncomfortable with making Tesla a leader in AI and robotics without controlling about 25% of the voting rights. Enough to be influential, but not so much that I can’t be overthrown,” he wrote in a post on X, the social media site formerly known as Twitter.
Musk owns and operates X after purchasing it in late 2022
Don’t miss these stories from CNBC PRO:
Source link
2024-01-31 03:34:17
www.cnbc.com