Judge Reduces Elon Musk’s Fortune, Dismisses Multi-Billion-Dollar Compensation Plan at Tesla.

A state court judge in Delaware, United States, has dismissed the 2018 compensation package that contributed significantly to Tesla CEO Elon Musk’s status as one of the world’s wealthiest individuals.

Chancellor Kathaleen McCormick of the Delaware Chancery Court, who presided over the trial concluding in November 2022, ruled on Tuesday that Musk and Tesla’s board did not sufficiently prove the fairness of the compensation plan.

Musk’s package included 303 million split-adjusted stock options, valued at $51 billion based on Tuesday’s closing prices, minus a modest exercise price of $23.34 per share.

As reported by CNN, the lawsuit was contested in Delaware, where Tesla and many other major US companies are incorporated. Musk, who hasn’t directly commented on the ruling, tweeted on Tuesday, “Never incorporate your company in the state of Delaware.”

Shareholder attorneys argued the stock option package was excessive and that Tesla’s board lacked independence, failing to safeguard shareholder interests. They challenged the financial targets set for Musk, claiming they were not the “stretch performance goals” they were presented as but rather mirrored the company’s internal growth forecasts shared with banks and rating agencies.

Greg Varallo, representing the plaintiffs, expressed gratitude for the court’s detailed decision, saying it benefits Tesla investors by eliminating the “dilution from this gargantuan pay package.”

Musk and Tesla’s board attorneys maintained that the package was approved by a shareholder vote, with 73% support excluding votes from Musk and his brother. They highlighted Tesla’s market cap growth from $54 billion at the package’s approval to $607 billion, attributing this to Musk’s crucial role.

They argued that without the package, Musk, who doesn’t receive a salary or bonus, would be uncompensated. However, McCormick refuted this, noting Musk’s preexisting equity stake already provided him with substantial financial rewards.

Musk recently expressed the need to increase his Tesla stake to prevent external control. He wrote on X about his preference for having about 25% voting control, stating that if this isn’t achievable, he would rather develop products outside Tesla.

At the time, he said Tesla’s board awaited the court’s decision before proposing a new pay package. Musk owns roughly 13% of Tesla’s shares; the lost options would have given him around 20.6% control, short of his desired 25%.

The decision is subject to appeal to the Delaware Supreme Court.

Some investors and analysts suggest Tesla should offer Musk a new compensation plan to keep him focused on Tesla’s success amidst his involvement in other ventures, including SpaceX, Twitter (rebranded as X in 2023), and the Boring Company.

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