Elon Musk lost in court for the second time over his pay compensation. The Tesla CEO failed to convince a Delaware judge to reverse her earlier ruling, which nullified his $56 billion pay package.
“A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth. The court’s decision is wrong, and we’re going to appeal,” Tesla said in a post on X.
Tesla’s promised appeal will bring the case to the Delaware Supreme Court.
“Shareholders should control company votes, not judges,” Musk responded to the ruling.
“Procedure protects everyone, the majority and the minority,” said Charles Elson, a leading authority in Delaware on corporate governance and executive compensation. “If you don’t protect minority investors, then you’re going to lose their investment.”
“There is no two sets of law, one for all of us and then a special set for executive superstars,” Elson continued. “It’s all the same, and [the judge] applied the law exactly as it should have been applied.”
Delaware Chancellor Kathaleen McCormick initially voided Musk’s pay plan in January 2024. It was the largest public company compensation in U.S. history.
A Tesla shareholder sued, saying it was excessively high and not in the company’s best interest.
McCormick agreed with her ruling and questioned the independence of Tesla’s board. That ruling, though, had a cascading effect.
Following the initial ruling, Musk took to X, saying, “Never incorporate your company in the state of Delaware.”
Delaware has become America’s corporate home with about 2 million businesses. Companies outnumber people 2-to-1.
In June, Tesla shareholders voted to move its incorporation to Texas, where Tesla is headquartered. They also overwhelmingly approved Musk’s original, challenged compensation plan in the same vote.
The vote was not likely to change Musk’s legal woes, but the company attempted to use it anyway. Six months later, McCormick held fast to her initial ruling despite four times as many shareholders voting for the pay plan than against.
“She found that this package was unfair to the company, [that it] was a gift, effectively, of assets to Mr. Musk. And once that’s the case, you can’t give away company money without a corporate purpose without everyone approving of it,” Elson explained.
For the second hearing on Musk’s compensation package, McCormick questioned the timing of the shareholder vote, which occurred after she had already ruled on the case.
“The whole thing was very strange. It was an odd way of approaching it,” Elson said.
He said the best approach would have been to institute an independent board of directors and start the process over.
Musk’s initial compensation package was built on performance and valuation goals. While it was worth $56 billion at the time in question, Tesla has seen a big boom from the Trump trade. Since the stock rally following Donald Trump’s election victory, Reuters reported the initial package is now worth more than $100 billion.
Tesla stock fell more than 2% Tuesday, Dec. 3, after the news that McCormick rejected Musk’s pay package again.