2024-01-31 06:47:03
The judge in a court in the state of Delaware, in the eastern United States, ruled in favor of a shareholder of the automobile manufacturer Tesla who requested the cancellation of a compensation plan estimated at $56 billion in favor of his boss Elon Musk. According to her, shareholders received “erroneous” and “misleading” information regarding the board of directors and the remuneration committee.
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4 mn
Hard blow for billionaire Elon Musk. The judge in a court in the state of Delaware, in the eastern United States, ruled in favor of a shareholder of the automobile manufacturer Tesla who requested the cancellation of a compensation plan estimated at 56 billion dollars, granted in 2018 to the American boss.
“The judgment is in favor of the plaintiff,” concluded Judge Kathaleen McCormick in her 200-page decision published Tuesday, January 30. “The plaintiff is entitled to have an annulment,” she concluded.
The judge clarified that the parties must now “discuss among themselves to establish a final decision intended to implement this judgment” and “to put an end to this matter at the trial level”.
“Was the richest man in the world overpaid?” begins the judge’s decision, noting that the plan represented 250 times the average compensation of Elon Musk’s peers.
The one she nicknamed the “Superstar CEO” held 21.9% of Tesla’s capital at the time but was the one who really had control, according to the document.
The judge considers that the shareholders received “erroneous” and “misleading” information regarding the board of directors and the remuneration committee – several members of which had been close to the billionaire for 15 to 20 years – ahead of the meeting general meeting during which the plan was approved.
“Never set up the headquarters of your company in the state of Delaware,” reacted the billionaire on the social network X (formerly Twitter), which he owns.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
A “ridiculously oversized compensation plan”
Around 0:30 GMT on Wednesday, Tesla shares lost 2.89% in electronic trading following the close of the New York Stock Exchange.
The law firm representing lead plaintiff Richard Tornetta and other shareholders was pleased in a statement to have won an “iconic” compensation case.
The judge “determined that Tesla’s board of directors failed in its fiduciary duty by structuring (Elon) Musk’s compensation in installments and, as a result, ordered that the package as a whole be voided.” noted the firm Bernstein, Litowitz, Berger & Grossman.
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“We are extremely grateful for the court’s careful and extremely well-reasoned decision to overturn Tesla’s ridiculously oversized compensation plan,” commented Greg Varallo, one of the plaintiffs’ lead attorneys, quoted in the firm’s statement.
This will be done “for the benefit of Tesla investors, who will see the dilution generated by this gargantuan plan be erased,” he continued. Elon Musk’s lawyer did not immediately respond.
Trial without jury
Hearings took place in November 2022, during which Elon Musk defended this enormous compensation plan. “The probability of survival (of the group) was extremely low,” recalled the multi-entrepreneur, ensuring that the manufacturer was very close to bankruptcy in 2018.
Elon Musk was sued, alongside Tesla and certain members of the board of directors, by a shareholder who accused them of having unduly authorized in 2018 “the largest compensation plan ever awarded to an executive”.
This plan included giving Elon Musk Tesla shares based on the achievement of several objectives over ten years. It was estimated at $56 billion when it was adopted.
According to the complainant, the businessman dictated his terms to directors who, given their relationships with him or their personal interests, were not sufficiently independent to oppose them.
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And this while he did not work full time for Tesla as he was also at the head of the space company SpaceX and the start-ups Neuralink and The Boring Company. He also bought the social network Twitter, which he renamed X.
The trial, which lasted five days, was held without a jury. Elon Musk had assured that he had not participated in the development of the plan, although documents shown in court suggested that he had discussed it with members of the board of directors and with executives.
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