A Delaware state court judge has invalidated the 2018 pay package that contributed to Elon Musk’s status as one of the world’s wealthiest individuals. Delaware Chancery Court Chancellor Kathaleen McCormick ruled on Tuesday that Musk and the Tesla board failed to prove the fairness of the compensation plan, nullifying the 303 million split-adjusted stock options currently valued at $51 billion.
The court decision follows a bench trial in November 2022, where shareholders argued that the stock options were excessive, and Tesla’s board lacked true independence to safeguard shareholder interests. They contended that the financial targets set for Musk were not challenging enough, resembling internal growth projections shared with banks.
Tesla’s defense highlighted shareholder approval of the pay package, excluding Musk’s votes, and the substantial increase in Tesla’s market cap since the package’s approval, rising over 1,000%. Musk, who receives no cash salary or bonus, argued that the pay package was reasonable compensation for his instrumental role in Tesla’s value surge.
Chancellor McCormick rejected the notion that invalidating the package would leave Musk uncompensated, noting his preexisting equity stake had already provided him with substantial returns. The decision can be appealed to the Delaware Supreme Court.
Musk’s diversified interests include SpaceX, Twitter (rebranded as X), the Boring Company, xAI (an AI company), and Neuralink. He emphasized the need to increase his stake in Tesla to around 25% for influence but not complete control. The recent court ruling impacts Musk’s plans for a new pay package, as he awaits the court’s decision.
The development raises questions about Tesla’s strategy to retain Musk’s focus on the company’s success amid his varied ventures. While Musk’s equity stake remains significant, the court’s decision removes the massive pay package, reshaping the landscape of compensation and influence within the tech mogul’s portfolio.