In the state of Delaware, a judge invalidated Tesla CEO Elon Musk’s $56 billion compensation package on Tuesday, supporting a shareholder’s claim of overpayment.
Delaware Chancery Court Judge Kathaleen McCormick ruled in favor of the plaintiff, Tesla shareholder Richard Tornetta, stating that he was “entitled to rescission,” thereby approving the cancellation of Musk’s massive 2018 compensation agreement valued at up to $55.8 billion.
McCormick added that the involved parties must now engage in discussions and subsequently submit a joint letter identifying all issues, including fees, that require resolution to conclude the matter at the trial level.
Following the release of the 200-page ruling, Tesla’s share price dropped over three percent in after-hours trading. Musk, the world’s richest person, posted a message on X (formerly Twitter) shortly after the decision, advising against incorporating a company in the state of Delaware.
A spokesperson for Musk did not provide an immediate response to requests for comment. Greg Varallo, representing the shareholders, expressed gratitude for the court’s decision, stating it would benefit Tesla investors by eliminating the dilution resulting from the substantial pay package.
Musk’s 2018 compensation plan was deemed “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude” by Judge McCormick.
The plan, valued at a maximum of $55.8 billion, allowed Musk to receive Tesla shares in 12 tranches based on specific performance criteria.
Musk, Tesla, and certain board members were sued, and the case went to trial in 2022. During the trial, Musk mentioned that investors believed Tesla would fail when the pay deal was approved, emphasizing the company’s challenging financial situation at the time.
Since the announcement of the deal, Tesla’s share price has surged, making it the world’s most valuable carmaker by market capitalization and propelling Musk to the top of the world’s wealthiest people.
In a recent post on X, Musk expressed discomfort with growing Tesla into an artificial intelligence and robotics leader unless he retained around 25 percent voting control.
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