In Delaware, Judge Kathaleen McCormick invalidated Tesla’s $55.8 billion (£44 billion) compensation to Elon Musk in 2018. A shareholder challenged it, alleging excess. Judge McCormick, in Tuesday’s ruling, criticized the flawed approval and ordered contract cancellation, deeming the sum “unfathomable” and harmful to shareholders.
The 2018 pay deal, the largest in US corporate history, propelled Musk to the world’s wealthiest, with a net worth estimate of $198-220 billion (£162-180 billion) in November 2023 by Bloomberg and Forbes. Compensation depended on Tesla’s performance targets, as Musk doesn’t receive a salary. Shareholder Richard Tornetta sued, claiming overpayment.
During the November 2022 trial, Tesla directors argued the pay aimed to secure Musk’s commitment. Judge McCormick’s 201-page ruling criticized directors for succumbing to Musk’s “superstar appeal” and highlighted ties with officials, including a 15-year relationship with Ira Ehrenpreis.
Greg Varallo, Tornetta’s attorney, celebrated it as a win. Musk, on social media, warned against incorporating in Delaware, suggesting Nevada or Texas. He polled followers on Tesla’s state of incorporation change to Texas.
The judge’s decision is appealable to the Delaware Supreme Court. Tesla’s shares fell 2.5% in extended New York trade, contributing to a year-to-date loss of over 20%.
Elon Musk, Tesla’s CEO, also owns X, SpaceX, and Neuralink. Despite selling Tesla stake for X, Musk plans to increase his Tesla stake.
The 2018 pay package, six times larger than top 200 CEOs’ combined salaries in 2021, drew public criticism. Analysts questioned it, given Musk’s board influence.
Musk expressed discomfort with Tesla’s AI investments, citing vulnerability to “dubious interests.” He stressed the need for more control to lead in AI or explore products outside Tesla.
