Elon Musk said he’s fed up with Delaware after a court there nullified his $56 billion pay package, with the tech entrepreneur saying that Tesla would hold a shareholder vote on moving the carmaker’s state of incorporation to Texas.
A Delaware judge voided the payment package to Mr. Musk on Jan. 30 as part of a lawsuit filed five years ago by Richard Tornetta, a Tesla shareholder, who claimed the pay package was marred by conflicts of interest and other factors.
Tesla was incorporated in Delaware before Mr. Musk joined the company. Delaware is a common destination for incorporation because of its business-friendly laws and low corporate taxes.
The poll had amassed 1.1 million votes at the time of publication, with over 87 percent voting “yes.”
Mr. Musk then urged other businesses to follow suit.
Delaware Court Pay Snub
Tesla granted Mr. Musk a $56 billion pay package in 2018, prompting a lawsuit by Mr. Tornetta, who argued that it should be voided for being excessive.The shareholder also claimed misleading disclosures on the part of Tesla. He argued that the key milestones Mr. Musk had to achieve in order to receive the pay package—which were described in proxy disclosures as very difficult to achieve—were in reality widely expected to be achieved.
Mr. Tornetta’s lawsuit further argued that a proxy statement issued by Tesla wrongly characterized the board’s Compensation Committee and the board as “independent when they were not,” and claimed that the compensation plan—the largest in U.S. corporate history—was devised by Mr. Musk himself.
The Delaware judge agreed, writing in the ruling that the company’s board of directors not only failed to prove that the pay plan was “fair” or to show any evidence that they “ever discussed or negotiated” the compensation package with Mr. Musk.
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price,” the judge wrote.
Judge McCormick also criticized the process that led up to the approval of Mr. Musk’s compensation plan as deeply flawed.
“In addition to his 21.9 percent 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,” the judge wrote. “At least as to this transaction, Musk controlled Tesla.”
Judge McCormick concluded by instructing Mr. Tornetta to collaborate with Mr. Musk’s legal team to draft an order implementing her decision. They should jointly identify all issues, including fees, for resolution at the trial level.
The Pay Package
Mr. Musk, who does not receive a salary from Tesla, agreed to the $56 billion pay package in 2018 to cover a period of 10 years.Under the deal, whenever Tesla achieved a key milestone in terms of operations and financials, Mr. Musk would receive stock worth around 1 percent of Tesla stock. By 2023, Mr. Musk had hit all 12 targets set out in the deal.
Lawyers for Tesla argued that the pay package was designed to incentivize Mr. Musk—who also heads space exploration firm SpaceX and social media platform X—to deliver results for the electric carmaker.
