Musk’s Tesla salary contract has been rejected again. Here’s why: NPR

A judge has once again rejected a proposed compensation plan for Tesla CEO Elon Musk that would exceed $50 billion, handing a victory to shareholders who opposed the compensation.

Delaware Court of Chancery Chief Justice Kathleen McCormick said in Monday’s ruling that Musk and his lawyers have “no procedural basis to overturn” a previous ruling in January that invalidated the pay package.

Here’s what you need to know about this:

This started in 2018

Monday’s decision was just the latest development in a long-running dispute over Musk’s pay at Tesla. The legal battle dates back to 2018, when Tesla shareholders approved a 10-year performance-based pay structure for Musk.

This compensation package is set up as a series of 12 milestones, with each milestone unlocking more coverage as Tesla continues to grow. Under the plan, Musk would not receive a salary, but instead would receive additional Tesla shares as the company grows.

At the time, the plan effectively required Musk to increase Tesla’s valuation by more than 10 times, leading many to believe that it was foolish for Musk to achieve the goals specified in the plan. Ta.

Still, the plan sparked a backlash from at least some Tesla shareholders, including Richard Tornetta, who opposed the compensation package and filed a lawsuit against Musk and Tesla in 2018.

Mr. Tornetta argued in his lawsuit that Mr. Musk exercised significant influence over the board of directors when developing the plan and that investors were misled when asked for approval.

Musk has refuted these allegations, denying in court that he dictated the terms of his pay package or that he attended the meetings where it was discussed.

Tornetta’s lawyers praised McCormick’s ruling on Monday, saying it “rejected Tesla’s invitation to introduce continued uncertainty into the court process.”

Why is there so much money?

Musk’s lawyers argued that the huge compensation package had been approved by shareholders and that Musk’s extraordinary pay was tied to “highly ambitious” performance goals. According to the compensation plan announced in 2018, Tesla needed to reach a market capitalization of $100 billion for Musk to reach the first milestone.

“For each of the remaining 11 milestones, Tesla’s market cap must continue to increase by an additional $50 billion. Therefore, for Elon to fully vest this award, Tesla’s market cap must continue to increase by $650 billion. ”, the company said.

Since then, the company has faced a number of challenges, including slowing growth in EV sales and increased scrutiny from regulators. But Tesla has also grown significantly. The company is currently valued at over $1 trillion.

But the company’s performance wasn’t enough to sway Mr. McCormick, who ruled in January that Mr. Musk was not eligible for the pay package. McCormick said in his opinion that the process that led to the plan’s approval was “deeply flawed” and cited Musk’s role as Tesla’s controlling shareholder as a potential conflict of interest.

A CEO’s superstar status “tends to give undue deference” to even truly independent directors and can create “a ‘field of distortion’ that impedes board oversight,” he said. I wrote about it in my opinion paper in January.

What the judge says about why she cut off her salary package

Hoping to persuade a judge, Tesla’s board returned pay packages to shareholders for the second time in June, voting with a staggering 72% majority.

But that wasn’t enough to change McCormick’s mind.

Not only did Mr. McCormick void the second compensation plan on Monday, he also agreed to pay Mr. Tornetta $345 million in legal fees, payable in cash or Tesla stock. The plaintiffs had asked for $5.6 billion, which the judge called an “absurd demand.”

Mr. McCormick asked Tesla to create a new package for Mr. Musk, but the June vote was meant to ratify the original agreement, not a new plan.

As with previous rulings, McCormick again raised concerns about Musk’s control and influence over the company, including its board of directors.

McCormick said there was “certainly a range of healthy amounts that the board could have decided to pay Mr. Musk,” but added that the board “bended to Mr. Musk’s terms, but the “We have not been able to prove that the terms are completely fair.”

McCormick also said that Delaware courts have never previously overturned a judgment based on a post-trial shareholder vote, adding that if a company can “invent” new facts after a judgment has been issued. “Litigation won’t last long.”

What happens next?

Musk’s lawyer did not respond to a request for comment, but Musk said on his social media platform X: “Shareholders should control the votes of the company, not the judges.”

Tesla also said in a post on X that the court’s decision was “wrong” and that it would appeal. The appeal will likely be filed in the Delaware Supreme Court.

“Even if this ruling is not overturned, it means that the judge and the plaintiffs’ attorneys are running a Delaware company rather than its rightful owners, its shareholders,” the company wrote Monday night.

Lawyers for Tesla shareholders who opposed Mr. Musk’s compensation said they would defend the court’s “thoughtful and reasoned opinion” if the decision is appealed.

NPR’s Camila Domonoske contributed to this report.