Delaware court orders recall of Musk’s massive compensation

A Delaware court has ruled that Tesla CEO Elon Musk’s jaw-dropping $56 billion pay package was excessive, ordering its recall and prompting potential repercussions for Musk’s status as the world’s richest person.

In a lawsuit filed five years ago by Tesla shareholder Richard Tornetta, accusations were made against the company’s board of directors and Musk himself for inadequately negotiating the colossal compensation package. The court, in its ruling on 30 January, concluded that Tesla’s board had set an inappropriate compensation amount for Musk.

Musk’s 2018 pay package, designed to ensure his focus on the company, consisted mainly of stock portions valued at approximately $55.8 billion. The lawsuit contended that Musk had undue influence on board members, resulting in an excessive payout. The plaintiff argued for a more reasonable package tied to achievable company goals, with Musk committing to work full-time at Tesla.

Amit Batish from executive pay research firm Equilar noted that Musk’s package was about six times larger than the combined total of the 200 highest-paid executives in 2021.

Tesla’s defence claimed that an independent committee of directors negotiated and shareholders approved the amount. Musk defended the payout during the trial, emphasizing its contribution to humanity’s goal of reaching Mars through Tesla’s assistance.

However, Judge Kathaleen McCormick deemed the negotiation process ‘deeply flawed,’ criticizing the lack of evidence of meaningful negotiations and highlighting Musk’s extensive ties with those negotiating on Tesla’s behalf. She questioned the necessity of the plan for Tesla to retain Musk and achieve its objectives.

The judge called for a ‘recall’ of the payout and directed Tesla to devise a new compensation plan for Musk. Musk, reacting on X (formerly Twitter), suggested incorporating companies outside Delaware for shareholder-centric decisions and faces the option to appeal.