Judge Blocks Tesla‘s $55.8 Billion Pay Plan for Elon Musk, Facing Appeal
A Delaware judge, Kathaleen McCormick, once again struck down Tesla’s massive $55.8 billion compensation plan for CEO Elon Musk. The decision, handed down on Monday, December 2, comes despite the plan receiving approval from a majority of the electric carmaker’s shareholders.
Tesla immediately condemned the ruling, declaring on X (formerly Twitter) that they would appeal. Musk, the multi-billionaire CEO, responded, “Shareholders must control the votes of companies, not judges.”
A Second Rejection After Shareholder Lawsuit
This marks the second time Judge McCormick has rejected the proposed compensation package. In January, she had already invalidated the plan, criticizing its allocation by a committee comprised of individuals closely tied to Musk.
The initial rejection came as a response to a lawsuit filed by a Tesla shareholder who sought to overturn the compensation plan. Although the board of directors subsequently resubmitted the plan for a shareholder vote, it was nevertheless met with another legal challenge.
Despite this, the plan, already approved once in 2018, received the backing of 72% of shareholders at a June meeting.
Judge McCormic: Proposal Aimed to Circumvent Previous Ruling
Following the June vote, Tesla proposed a meeting with all parties involved to discuss a potential resolution. However, Judge McCormick remained unconvinced. In her Monday decision, she stated that “Tesla and Musk could have proposed a new plan that they deemed fair and accepted that the court would only cancel part” of the original amount.
“Instead,” the judge wrote, “they tried to get the same plan approved by relying on vague theories about Delaware law.”
Judge McCormick affirmed that the initial ruling “did not say that Musk should not be paid for his work at Tesla.” However, she deemed the company’s repeated attempts to force through the same plan a direct attempt to circumvent her previous decision.
Shareholder’s Lawyer Awarded $345 Million in Fees
Adding to Tesla’s woes, Judge McCormick also ruled that Gregory Varallo, the lawyer representing the shareholder who initiated the original lawsuit, should receive $345 million in compensation for his work. This expense will be borne by Tesla.
Varallo successfully argued that the shareholder vote had no influence on the legal proceedings. This highlights the potential for shareholder activism and legal challenges even when a company proposes a plan backed by a majority of its shareholders.
It remains to be seen whether Tesla’s appeal will be successful, but this court battle highlights the complex and often contentious relationship between a company’s leadership, its shareholders, and the judicial system.
What are the potential implications of this case for the balance of power between shareholders and courts in determining executive compensation?
## Tesla Pay Plan Rejected Again: Interview with Corporate Law Expert
**Host:** Welcome back to the show. Earlier today, a Delaware judge blocked Tesla’s $55.8 billion compensation plan for CEO Elon Musk, a decision that’s sure to send shockwaves through the corporate world. Joining us now to discuss the legal ramifications is corporate law expert Professor Sarah Jones. Professor Jones, thanks for joining us.
**Sarah Jones:** Thank you for having me.
**Host:** This is the second time Judge McCormick has rejected this plan, despite shareholder approval. What makes this case so unusual?
**Sarah Jones:** This case is highly unusual because of the sheer size of the compensation package and the judge’s repeated rejection despite shareholder approval [[1](https://www.usatoday.com/story/money/2024/12/02/elon-musk-tesla-pay-rejected/76714329007/)]. Typically, courts defer to shareholder votes on these matters, but Judge McCormick has raised serious concerns about the process through which the compensation plan was designed and approved, citing potential conflict of interest with the committee overseeing the allocation.
**Host:** Tesla has stated they will appeal this decision. What are their chances of success?
**Sarah Jones:** That’s a difficult question to answer. Appeals courts generally show deference to lower court decisions, especially when factual findings are involved. However, Tesla may argue that the judge overstepped her bounds by overriding a clear shareholder vote. The outcome will depend on how the appeals court interprets the judge’s reasoning and the specific legal arguments presented.
**Host:** Elon Musk reacted on X, formerly Twitter, saying, ”Shareholders must control the votes of companies, not judges.” What’s your take on this statement?
**Sarah Jones:** While shareholders do hold significant power in corporations, the law also recognizes the role of courts in ensuring fairness and protecting against potential abuses. In this case, the judge seems to believe that shareholder approval alone wasn’t sufficient to overcome the concerns regarding the process leading to the compensation plan.
**Host:** What does this mean for the future of CEO compensation packages, particularly at innovative tech companies?
**Sarah Jones:** This case could serve as a precedent, prompting boards of directors and compensation committees to be even more transparent and diligent in their decision-making processes. It also highlights the need for clear procedures and independent oversight to prevent conflicts of interest when designing executive compensation packages.
**Host:** Professor Jones, thank you so much for your insightful analysis.
**Sarah Jones:** My pleasure.
