A Delaware judge ruled Tuesday that tech billionaire Elon Musk will not get the $55 billion compensation package approved by Tesla’s Board of Directors.
“Was the richest person in the world overpaid?” read the first line of the 201-page Post Trial Opinion written by Chancellor Kathaleen St. Jude McCormick, who oversaw the case.
The case was filed by Tesla shareholder Richard J. Tornetta on behalf of all company shareholders back in April 2023.
Tornetta accused Musk and his board of breaching their fiduciary duties by awarding the billionaire a performance-based equity-compensation plan worth roughly $55 billion.
McCormick described the plan “as the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.”
The total amount would be “250 times larger than the contemporaneous median peer compensation plan,” she wrote.
Musk's public statement in response to the ruling? The Tesla co-founder and CEO posted on his X social media platform, "Never incorporate your company in the state of Delaware."
After “1,704 trial exhibits, live testimony from nine fact and four expert witnesses, video testimony from three fact witnesses, deposition testimony from 23 fact and five expert witnesses, and 255 stipulations of fact,” McCormick said Musk and his team failed to meet its burden of “proving that the compensation plan was fair” during the five-day long trial.
Instead, McCormick said she found the Board’s negotiations process “deeply flawed” due to the fact that Musk had extensive ties with those “tasked with negotiating on Tesla’s behalf.”
One board member had been doing business with Musk for over 20 years, another accompanied Musk on personal vacations, she wrote, calling the entire process a “conflicted-controller transaction,” which was not fully disclosed to the stockholder vote.
The 'Weinberger Factors'
There were three key points used to determine if the deal was fair, McCormick said in the post trial opinion, citing US corporate law case Weinberger v. UOP, Inc., 457 A.2d 701, (Del.1983).
The “Weinberger factors” are known as “how the deal was initiated and timed, how it was structured and negotiated, and how it was approved."
On Factor 1, McCormick said Musk “repeatedly and unilaterally manipulated the timeline of the negotiation process.”
For Factor 2, not only was there a lack of arm’s length negotiations, but the process was considered by board members to be “a cooperative and collaborative one.”
And finally, Factor 3, the negotiations failed to provide any procedural protections such as “the approval of an independent board negotiating committee or a majority of the minority vote.”
As of January 2024, Musk is the richest person in the world, with a net worth of $229 billion, according to Investopedia.
Besides Tesla, Musk is the founder, CEO, and chief engineer of SpaceX, CTO and chairman of X (formally known as Twitter), and co-founder of Neuralink and OpenAI, among others.
More from Cybernews:
Subscribe to our newsletter