Tech magnate Elon Musk is grappling with a substantial setback to his wealth after a Delaware court ruled against the $55 billion compensation package that Tesla’s Board of Directors had approved for him.
The legal challenge to Musk’s compensation package was initiated by Tesla shareholder Richard J. Tornetta in April 2023, representing all company shareholders. Tornetta accused Musk and the board of breaching their fiduciary duties by granting the billionaire a performance-based equity-compensation plan valued at approximately $55 billion.
In the Post Trial Opinion issued by Chancellor Kathleen St. Jude McCormick, who presided over the case, the judge characterized the plan as “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” She highlighted that the total amount would be “250 times larger than the contemporaneous median peer compensation plan.”
Flawed Approval Process:
In the court’s ruling, McCormick pointed out significant flaws in the approval process:
“The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf, including a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. Antonio Gracias, another compensation committee member, had business relationships with Musk spanning over two decades, as well as a personal relationship that included regular vacations with Musk’s family. The working group involved management members beholden to Musk, such as General Counsel Todd Maron, who was Musk’s former divorce attorney.”
McCormick added that Musk and his team failed to demonstrate that the compensation plan was fair during the five-day trial.
Musk’s Reaction:
Responding to the ruling, Musk, in a public post via his X handle, suggested that incorporating Tesla in Delaware was a mistake. He urged against incorporating companies in the state of Delaware and recommended Nevada or Texas for those who prefer shareholder decision-making. Additionally, Musk is contemplating changing Tesla’s state of incorporation, raising the possibility of relocating it to Texas, where the company’s physical headquarters are located.
Implications of the Ruling:
The court’s decision leaves Elon Musk’s financial future uncertain. With a net worth of approximately $51.1 billion, the blocked compensation options represent one of his most valuable assets. Without them, his net worth could drop to $154.3 billion, making him the third-richest person globally, according to the Bloomberg Billionaires Index, after spending the past few years at the top.
