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Monday, July 15, 2024

Tesla shareholders defy court ruling to back Musk’s record pay

Two weeks ago, Tesla shareholders voted to ratify the 2018 stock options package, seemingly undermining the earlier court decision.

Tesla has claimed victory in the legal battle over CEO Elon Musk’s $56 billion pay package, asserting that a recent shareholder vote to ratify the compensation overrides a judge’s earlier decision to void it. This development follows a contentious ruling in January by Delaware Judge Kathaleen McCormick, who rescinded Musk’s compensation package due to concerns over improper influence and misleading information provided to shareholders.

January Ruling and Its Implications

In January, Chancellor Kathaleen McCormick of Delaware’s Court of Chancery invalidated Musk’s pay plan. The judge found that Musk’s close relationships with some board members influenced the negotiation process and that the company failed to adequately inform shareholders about Tesla’s progress in meeting performance-based targets. This ruling was a significant setback for Musk, who has been a pivotal figure in Tesla’s rise to prominence in the electric vehicle market.

Read More: Tesla Shareholders Approve Musk’s $45 bn Pay Package

Shareholder Vote: A Turning Point

Two weeks ago, Tesla shareholders voted to ratify the 2018 stock options package, seemingly undermining the earlier court decision. Tesla argues that this shareholder approval demonstrates strong support for Musk’s leadership and compensation plan, thus nullifying the January ruling. The company’s filing suggests that the final order should state “judgment is entered for the defendants,” effectively siding with Tesla and Musk.

Ongoing Legal Disputes Over Fees

The shareholders’ legal team, however, is pushing back. They want the judge to uphold her original ruling and order Tesla to compensate them with potentially billions of dollars in Tesla stock as legal fees. The attorneys for shareholder Richard Tornetta, who initiated the lawsuit, initially requested 29 million shares of Tesla stock—valued at over $5 billion—as their fee. Alternatively, they proposed a $1.1 billion payment, which they argue is based on precedent but still considered “unfairly low” by the legal team.

Upcoming Oral Arguments and Potential Outcomes

Judge McCormick has ordered both parties to prepare briefs on the impact of the shareholder vote on the case and to agree on a date for oral arguments in late July or early August. She will hear arguments regarding the legal fees on July 8 and may take a few weeks to issue a ruling.

Read More: Clash at Tesla’s German Factory

Even if the judge does not reverse her January ruling, she might recognize that the shareholder vote indicates minimal value in winning the case, as Tesla shareholders appear to support Musk’s record-breaking compensation. This could significantly undermine the fee request from the shareholders’ legal team.