December 3rd 2024.
The court in Delaware has rejected Elon Musk's record-breaking pay package for his role as CEO of Tesla, despite it being approved by shareholders at a meeting in June. This package is now valued at around $101 billion, consisting of 303 million Tesla stock options. However, this is not the first time the package has been rejected. In January, the same judge, Delaware Chancery Court Chancellor Kathaleen McCormick, threw it out. At the time, the package was worth $56 billion.
McCormick ruled in favor of the main shareholder who challenged the package, arguing that Musk and the Tesla board had not provided sufficient proof that the compensation plan was fair. Musk's lawyers tried to appeal the decision in January, after the package was re-approved by 84% of shares not held by Musk or his brother, Kimbal Musk, in June. However, their motion was denied on Monday.
In her scathing opinion, McCormick stated that just because the package was again ratified by a majority of shareholders, it did not mean that Musk's record-breaking payday was in the best interests of the shareholders. She also criticized the defense firms for coming up with creative arguments to support the ratification, stating that their theories went against established laws.
Unlike most CEOs, Musk does not receive a cash salary or bonus for his work at Tesla. Instead, he earns his money through lucrative stock options that allow him to purchase millions of Tesla shares at a discounted price. McCormick agreed with the argument that the board is too closely tied to Musk, with the CEO admitting that he "negotiated against himself" when it came to his own compensation.
McCormick noted in her opinion that while Musk is entitled to some form of compensation, the final award was not fair to the shareholders. She pointed out that the board could have chosen to pay Musk a range of healthy amounts, but instead, they gave in to his terms without proving that they were entirely fair.
During the June shareholder vote, the Tesla board argued that they needed to keep Musk's pay package in place to keep him fully engaged in leading the company. However, Musk's attention has been divided recently, with his involvement in other companies like SpaceX, Neuralink, the Boring Company, and X. He has also been involved in politics, donating millions to Donald Trump's 2024 presidential campaign and joining him on the campaign trail. Most recently, Trump has appointed Musk and former Republican presidential candidate Vivek Ramaswamy to lead the newly formed Department of Government Efficiency, with a focus on reducing the federal budget and cutting government regulations and staffing.
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