Elon Musk is not entitled to landmark compensation package awarded by Tesla’s board of directors that is potentially worth more than $55 billion, a Delaware judge ruled Tuesday.
The ruling by Chancellor Kathaleen St. Jude McCormick comes more than five years after a shareholder lawsuit targeted Tesla CEO Musk and directors of the company. They were accused of breaching their duties to the maker of electric vehicles and solar panels, resulting in a waste of corporate assets and unjust enrichment for Musk.
The shareholder’s lawyers argued that the compensation package should be voided because it was dictated by Musk and was the product of sham negotiations with directors who were not independent of him. They also said it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.
Defense attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones so lofty that they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law. They also argued that Musk was not a controlling shareholder because he owned less than one-third of the company at the time.
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An attorney for Musk and other Tesla defendants did not immediately respond to an email seeking comment.
But Musk reacted to the ruling on X, the social media platform formerly known as Twitter that he owns, by offering business advice. “Never incorporate your company in the state of Delaware,” he said. He later added, “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”
Musk, who as of Tuesday topped Forbes’ list of the world’s richest people, had earlier this month challenged Tesla’s board to come up with a new compensation plan for him that would give him a 25% stake in the company. On an earnings call last week, Musk, who currently holds 13%, explained that with a 25% stake, he can’t control the company, yet he would have strong influence.