A Delaware judge ruled that Tesla's board of directors did not prove "that the compensation plan was fair"
A judge in Delaware voided Elon Musk’s Tesla pay package, valued at $55.8 billion, on Tuesday after ruling that the board of directors did not prove “that the compensation plan was fair.”
Tesla granted Musk, 52, the pay package in 2018, and it was the “largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude,” Delaware Chancery Court Judge Kathaleen St. J. McCormick wrote in a 200-page ruling. Tesla shareholder Richard Tornetta asked the state’s business law court to cancel the package, arguing that the automaker’s board of directors “breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan,” McCormick noted.
According to McCormick, Tornetta proved Musk “controlled Tesla” and the process that ended with Musk’s pay package being approved was “deeply flawed.”
The judge noted Musk’s “extensive ties with the persons tasked with negotiating on Tesla’s behalf,” adding that Musk “launched a self-driving process, recalibrating the speed and direction along the way as he saw fit.”
McCormick wrote that Musk had an “enormous influence” over Tesla, thanks to his relationship with the company and its directors.
“In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” McCormick wrote. “At least as to this transaction, Musk controlled Tesla.”
Crafting Musk’s pay package “arrived at an unfair price,” McCormick wrote, later adding that the “plaintiff is entitled to rescission.”
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
Never miss a story — sign up for PEOPLE's free daily newsletter to stay up-to-date on the best of what PEOPLE has to offer, from celebrity news to compelling human interest stories.
Musk’s team was “unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process,” McCormick wrote.
“The parties are to confer on a form of final order implementing this decision and submit a joint letter identifying all issues, including fees, that need to be addressed to bring this matter to a conclusion at the trial level,” the judge’s decision read.
“Never incorporate your company in the state of Delaware,” Musk wrote on X (formerly Twitter), shortly after the ruling was published.
Musk owns about 13% of Tesla’s stock outright, reports CNBC. In December, he tweeted that he was “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned.”
For more People news, make sure to sign up for our newsletter!
Read the original article on People.