Musk's $56B Tesla compensation is rejected by judge, again
Tesla promises to appeal ruling in 6-year battle, which came after 'novel' shareholder vote in June
A Delaware judge ruled on Monday that Tesla CEO Elon Musk still is not entitled to receive a $56 billion US compensation package despite shareholders of the electric vehicle company voting in June to reinstate it.
The ruling by the judge, Chancellor Kathaleen McCormick of the Court of Chancery, follows her January decision that called the pay package excessive and rescinded it, surprising investors, and cast uncertainty over Musk's future at the world's most valuable carmaker.
In a post on X after the decision, Musk said that "shareholders should control company votes, not judges."
Tesla in a statement on X said, "The ruling is wrong, and we're going to appeal," adding that the judge had overruled a supermajority of shareholders.
Musk and Tesla can appeal to the Delaware Supreme Court as soon as McCormick enters a final order, which could come as soon as this week. The appeal could take a year to play out.
'Unprecedented theories'
Tesla has said in court filings that the judge should recognize a subsequent June vote by its shareholders in favour of the pay package for Musk, the company's driving force who is responsible for many of its advances, and reinstate his compensation. The company has acknowledged that the June vote was a "novel" legal tactic and has said it was unclear how it would be treated under Delaware law.
"The large and talented group of defence firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law," she said in her opinion.
McCormick said a ratification vote like the one used by Tesla had to be conducted before the trial and a company cannot ratify a transaction involving a conflicted controller. She had determined Musk controlled the pay negotiations.
"Even if a stockholder vote could have a ratifying effect, it could not do so here due to multiple, material misstatements in the proxy statement," she added.
McCormick also ordered Tesla to pay the lawyers who brought the case $345 million US, well short of the $6 billion US they initially requested, but still one of the largest fee awards ever in securities litigation. She said the fee could be paid in cash or Tesla stock.
"We are pleased with Chancellor McCormick's ruling, which declined Tesla's invitation to inject continued uncertainty into Court proceedings," said a statement from Bernstein Litowitz Berger & Grossmann, one of the three law firms for the plaintiff.
Tesla shares fell 1.4 per cent in after-hours trading after the ruling, although the company's shares overall have surged 42 per cent since Musk-supported Donald Trump won the U.S. election last month.
Following that rally, the pay package is worth about $101 billion US.
The ruling comes as Musk has been tasked by Trump with creating a more efficient government by slashing spending. The role as co-lead of the new Department of Government Efficiency would be informal rather than a government position, allowing Musk to keep his job at Tesla as well as leading other companies including rocket maker SpaceX.
Musk threw himself behind Trump's election campaign and has become a close adviser in the process, reportedly near the president-elect as he has engaged in calls with foreign leaders and business executives.
Improper board control cited
The Tesla board had said that Musk, who doesn't draw a salary from the company, deserved the package because he hit all the ambitious targets on market value, revenue and profitability.
After the January ruling, shareholders flooded the court with thousands of letters arguing that rescinding Musk's pay increased the possibility he would leave Tesla or develop some products like artificial intelligence at ventures other than Tesla.
Mom-and-pop investors and Musk's influential fans helped Tesla and Musk win the June shareholder vote and many were speaking up on social media against Monday's decision.
"Beyond the pedantic details of legal procedure, the bigger issue here is that the voice of shareholders is being overruled," Omar Qazi, one of those fans, said in a post on X from the handle @WholeMarsBlog after Monday's ruling.
McCormick in January found that Musk improperly controlled the 2018 board process to negotiate the pay package.
After the January ruling, Musk criticized the judge on his social media platform X and encouraged other companies to follow the lead of Tesla and reincorporate in Texas from Delaware, although it is unclear if any companies did so.
The judge in her January ruling called the pay package the "biggest compensation plan ever — an unfathomable sum." It was 33 times larger than the next biggest executive compensation package, which was Musk's 2012 pay plan.