Washington:
A U.S. judge on Monday upheld her decision to reject Elon Musk’s massive $55.8 billion pay proposal for Tesla, denying an attempt to restore the pay agreement through a shareholder vote.
Chancellor Kathleen McCormick of the Delaware Court of Chancery said in a court filing that Tesla’s attempt to approve Musk’s compensation package through a June shareholder vote called the package excessive and unfair to shareholders. The court ruled that the January decision he had criticized could not be overturned.
McCormick found multiple flaws in Tesla’s ratification effort, including “material misstatements” in documents provided to shareholders about the effects of shareholder votes.
“Motion to amend failed,” McCormick wrote.
“Large and powerful defense business groups have brought ingenuity to the ratification debate, but their unprecedented theories run contrary to multiple established laws,” she added.
In a statement on Musk’s social media platform X, Tesla said it would appeal the ruling.
“Shareholders should control company votes, not judges,” Musk said in another post.
The court also awarded $345 million in attorney fees, significantly less than the $5.6 billion sought by lawyers for plaintiff Richard Tornetta, a Tesla shareholder.
While McCormick acknowledged that their method of calculation was technically sound, based on Delaware law that establishes fees based on a percentage of the profits achieved, such a large award would represent an undue windfall. It was decided that this was the case.
Shareholders initially supported Musk’s compensation plan in March 2018, which was specifically designed to reward the 53-year-old founder for Tesla’s significant growth.
But Mr. Tornetta in his lawsuit accuses the defendants of neglect of duty when they approved the pay plan, alleging that Mr. Musk dictated terms to directors who were not sufficiently independent from the star CEO.
He also accused Musk of “unjust enrichment” and called for an end to the pay program that helped make the entrepreneur the world’s richest man.
During his 2022 trial, Musk countered that Tesla investors were some of the “most sophisticated in the world” and could monitor his management team.
He said Tesla was the laughing stock of the auto industry, but only the huge success of the company’s Model 3 turned things around.
Musk claimed he had no role in devising the package and did not discuss the deal with his board members, some of whom were close friends, but ultimately claimed that the board had approved it.
The Delaware Court of Chancery has been a pillar of American capitalism for more than a century, and is the jurisdiction where approximately two-thirds of America’s Fortune 500 companies are registered.
On Monday, Musk reposted another user’s X post calling for companies to leave Delaware.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
