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 arguments for and against judicial intervention in cases of executive compensation packages that have been approved by shareholders?
## Tesla CEO Pay Package Rejected Again: Legal Battles Continue
**Interviewer:** Welcome back to the show. Joining us today to discuss the recent legal setback for Tesla CEO Elon Musk is corporate law expert, Professor Alex Reed. Professor, a judge has once again blocked Tesla’s proposed $55.8 billion compensation package for Musk. Can you provide some context for our viewers?
**Professor Alex Reed:** Certainly. This is a fascinating case highlighting the tension between shareholder democracy and judicial oversight of corporate governance.
Judge McCormick’s decision marks the second time she has invalidated this massive pay plan. Her January ruling highlighted concerns about the composition of the committee that designed the package, arguing its closeness to Musk presented a conflict of interest. [[2](https://www.cnn.com/2024/06/13/business/elon-musk-tesla-pay-billions-vote/index.html)]
Despite this, Tesla put the revised plan back to shareholders for a vote, and it was approved. However, the judge has again ruled against it, indicating profound concerns about its fairness and legality, even with shareholder approval.
**Interviewer:** Tesla has vowed to appeal this decision and argued that shareholders should have the final say in these matters. What are the implications of this ongoing legal battle?
**Professor Alex Reed:** This case sets a significant precedent. It underscores the court’s willingness to intervene in cases where they perceive potential abuses of power or conflicts of interest, even when shareholders appear to have endorsed a decision. The outcome of this appeal will likely have far-reaching consequences for how executive compensation packages are structured and approved, not just for Tesla but for other publicly traded companies as well.
**Interviewer:** It’s certainly a complex situation. Professor Alex Reed, thank you so much for shedding light on this important case.
**Professor Alex Reed:** My pleasure.
