A Delaware judge on Tuesday ruled against Tesla Inc. chief executive Elon Musk’s proposed $55.8 billion pay package after finding no proof of the compensation plan being fair to shareholders.
Chancery Court Judge Kathaleen McCormick ruled in favor of the investor plaintiffs who opposed Musk’s considerable package, determining the compensation was too substantial and improperly arranged by the US electric vehicle maker’s (EV) board of directors.
The Tesla board has been criticized for its inability to keep Musk in check, who has argued with regulators and is running a few other companies simultaneously.
Shares in the US electric vehicle maker (EV) dropped 2.55% in after-hours trading following the news, and certain investors placed their bets on the judge’s decision, expecting it to trigger a governance shake-up within Tesla.
The ruling comes as Texas-based Tesla is set to have another compensation talks with its boss.
In the past few weeks, Musk has expressed his demand for more control in the carmaker, stating that he was “uncomfortable” guiding Tesla towards an artificial intelligence (AI) and robotics leadership without a 25% voting control.
Musk currently owns 13% of the company and has said discussions would begin once McCormick had a decision.
McCormick on Tuesday instructed parties to talk on a final form of order to implement her ruling, which can be appealed to the Delaware Supreme Court.
The Purpose of Musk’s $55.8B Pay Package
The judge’s decision voids the largest pay package in the US’s public corporate history, which could have made Musk a centi-billionaire, further cementing his position as the world’s richest person.
Tesla granted its boss nearly $56 billion compensation in 2018, offering Musk the opportunity to obtain 12 tranches of the EV giant’s stock options, which would vest if the company saw a $50 billion surge in market capitalization and meet a revenue target.
Musk stated in a compensation trial in November 2022 that the money would be allocated to efforts involving interplanetary travel, particularly enabling Tesla to help people’s space voyage to Mars.
The carmaker’s 10-year pay deal with Musk would be valued at about $51 billion at the closing price of Tesla’s shares on Tuesday, including the cost to Musk to sell the options.
That represents around 25% of his estimated net worth of $210.6 billion, currently $2 billion higher than France’s LVMH Moet Hennessy Louis Vuitton SE chief executive Bernard Arnault and his family.
