In a shocking turn of events, a Delaware judge has voided the pay package that made Tesla CEO Elon Musk a billionaire many times over and the wealthiest person in the world. The decision, delivered by Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery, called out Mr. Musk and Tesla’s board of directors for overseeing a deeply flawed compensation plan. The court ordered that the contract be voided, and directed the parties involved to work out how Mr. Musk would return excess pay. The controversial pay package, which was split into 12 separate grants, is estimated to be worth about $51.1 billion at Tesla’s closing share price on Tuesday. Despite achieving all 12 goals tied to the package, Mr. Musk is now facing the possibility of having the shares canceled, which would substantially reduce his wealth and stake in Tesla.
The lawsuit, which led to a trial in November 2022, gained added significance after Mr. Musk’s acquisition of Twitter in October. The decision also raises questions about how Tesla’s board will respond to Mr. Musk’s recent demand for an even greater stake in the company. In his testimony during the trial, Mr. Musk argued that his impact on the car industry justified his pay, claiming that Tesla’s influence was the main reason for the rest of the car industry moving towards sustainable, electric vehicles.
Some compensation experts believe that this decision will send a warning to other companies that award their top executives very large pay packages. Sarah Anderson, global economy project director at the Institute for Policy Studies, a progressive research group, stated, “It’s an incredibly important decision because it establishes that there is such a thing as excessive compensation.”
As opinions on the decision continue to be debated, it remains to be seen how this ruling will impact executive compensation at other companies and whether it will lead to increased scrutiny and regulation in the future.