“Was the richest person in the world overpaid?”
That’s how a Delaware judge, Kathaleen McCormick, began her epic 200-page opinion against Elon Musk’s $56 billion compensation package as Tesla CEO. Ruling in the suit brought by a stockholder plaintiff, McCormick wrote that the civil defendants had the burden of proving Musk’s compensation plan was fair but had failed to meet it.
The judge noted that the eye-popping sum is “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” And though a decision on CEO pay by a board of directors is “the quintessential business determination subject to great judicial deference,” she went on to observe that, under Delaware law, there’s an issue of fairness that raised another stark question: Does Musk control Tesla?
He did for this transaction, the judge found, highlighting, among other things, Musk’s “thick ties” with the directors negotiating on behalf of the electric automaker. There was “no meaningful negotiation over any of the terms of the plan,” McCormick wrote.
CNBC reported that Tesla’s share price fell about 3% in after-hours trading Tuesday in the wake of the decision, which can be appealed.
Musk, who of course also owns the social media company X that’s better known as Twitter, posted on his site after the ruling: “Never incorporate your company in the state of Delaware.” Indeed, he floated the possibility of moving the company to Texas. Yet a corporate expert told CNBC that reincorporating itself could be challenged by shareholders. So the Delaware ruling may stand as a potent reminder, one often thought of these days in the context of a certain former president, that even the most powerful can’t always outrun the law.
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