A Delaware judge has ruled in favor of Tesla investors who sued to challenge the $56 billion pay package for Tesla CEO Elon Musk. The judge stated that the plaintiff is entitled to rescission, and the two parties are directed to confer on a final form of order to implement her decision. The ruling can be appealed to the Delaware Supreme Court. The judge mentioned that Tesla was unable to prove that the stockholder vote was fully informed due to inaccuracies in the proxy statement, leaving the company with the challenging task of proving the fairness of the largest potential compensation plan in the history of public markets.
Tesla’s agreement with Musk is the largest compensation ever provided to an executive and plays a significant role in making him one of the world’s wealthiest individuals. The compensation plan allows Musk to buy Tesla stock at discounted prices as financial and operational goals are met, but he is required to hold the acquired stock for five years. Musk qualified for all 12 tranches in the compensation plan and wasn’t guaranteed any salary.
During the trial, Tesla argued that the compensation was necessary to ensure Musk’s dedication to the company, while the plaintiff’s attorneys claimed that the board failed to disclose that the goals were easier to achieve than acknowledged and that Musk was on track to qualify for large portions of the pay package. The plaintiff argued that the board should have offered a smaller pay package or sought another CEO and required Musk to work full time at Tesla.
Musk responded to the ruling on his social media platform X, advising against incorporating a company in the state of Delaware. In a follow-up post, he asked users whether Tesla should change its state of incorporation to Texas, where its physical headquarters is located, with over 90% responding “yes.” Tesla shares experienced a decline of up to 3.6% in after-hours trading following the ruling. The decision will bring Tesla’s next round of compensation negotiations with Musk into focus. Musk recently expressed discomfort with expanding Tesla’s AI work without having 25% voting control of the company, and at the time of his comments, he owned about 13% of the company. Tesla has not immediately responded to requests for comment.