A Delaware judge has annulled a $55.8 billion pay deal awarded to Elon Musk in 2018 by Tesla.
The lawsuit was filed by a shareholder who argued that it was an overpayment.
Judge Kathaleen McCormick called the compensation “an unfathomable sum” that was not fair to shareholders and said the process leading to the package being approved was “deeply flawed”.
She ruled the contract should be canceled.
The pay deal, decided back in 2018, was the biggest ever in US corporate history, helping to make Elon Musk the richest person in the world. Bloomberg and Forbes estimated his net worth to be between $198 billion and $220 billion, in November 2023.
Tesla’s package tied Elon Musk’s compensation to performance targets, such as Tesla’s share price and profitability. He does not receive a salary.
However, Tesla shareholder Richard Tornetta launched legal action calling for the award to be rescinded, arguing the tycoon had been overpaid.
Following years of legal argument, a week-long trial commenced in November 2022 where Tesla directors argued the huge pay award was designed to ensure that Elon Musk, one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the company.
In her 201-page ruling released on January 30, Judge McCormick said that Tesla directors had been “swept up by the rhetoric” surrounding Elon Musk’s “superstar appeal”.
Moreover, Elon Musk had “extensive ties” with the Tesla officials tasked with negotiating the pay award. She cited his 15-year relationship with the compensation committee chair, Ira Ehrenpreis.
Elon Musk also had business relations with another compensation committee member Antonio Gracia dating back more than 20 years, the judge said.
Following the release of the ruling, Greg Varallo, an attorney for the Tesla shareholder Richard Tornetta, said it was a “good day for the good guys,” in an email reported by the Reuters news agency.
In a post on X, Elon Musk said: “Never incorporate your company in the state of Delaware”.
“I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters”, he added. He then posted a poll asking his followers whether or not Tesla should “change its state of incorporation to Texas, home of its physical headquarters”.
The judge’s ruling can be appealed to the Delaware Supreme Court.
Shares in Tesla were down by around 2.5% in extended New York trade. They have lost more than 20% of their value so far this year.
As well as being the chief executive and a major shareholder of Tesla, Elon Musk also owns several other companies including the social media platform X, the rocket company SpaceX, and the brain chip firm Neuralink.
After selling a large chunk of his stake in Tesla to buy X, Elon Musk currently owns about 13% of the electric carmaker but has recently said he wants a bigger stake in the company.
