Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Delaware Supreme Court reinstated a $56bn pay package for Elon Musk, ruling that the cancellation in 2024 was an inappropriate remedy for a pay plan awarded by a company board too beholden to the Tesla chief.
“Total rescission leaves Musk uncompensated for his time and efforts over a period of six years,” the court wrote in an opinion released on Friday.
The high court confirmed Tesla’s board in 2018 improperly approved a share grant of hundreds of millions of shares to Musk if Tesla reached several operational and financial milestones on his watch. But it concluded that complete withdrawal of the plan was not a proper remedy for the mis-step.
The firestorm over the 2024 ruling eventually led the Tesla board to award a new pay deal this year, easily approved by shareholders in November, worth as much as $1tn if all thresholds are hit, again reinforcing the billionaire entrepreneur’s popularity. But the Tesla board said it would withdraw the latest grant if the Delaware Supreme Court reinstated the 2018 package.
The 303mn shares restored to Musk under the ruling are worth nearly $150bn today.
As its remedy for the breaches of duty, the Delaware trial court had cancelled Musk’s 2018 pay deal. On Friday, Delaware’s high court said that, even as Tesla’s board had improperly approved the stock grant, shareholders had benefited from Musk’s efforts between 2018 and 2024, a time when the company’s market capitalisation soared to more than $1tn.
“It is undisputed that Musk fully performed under the 2018 Grant, and Tesla and its stockholders were rewarded for his work,” the court wrote.
In early 2024, the lower Delaware Court of Chancery said the process behind approving the grant in 2018, which was also approved by a majority shareholder vote at the time, was flawed because of the board’s close personal and professional ties to Musk.
“Musk was the paradigmatic ‘Superstar CEO’ . . . and dominated the process that led to board approval of his compensation plan,” Chancellor Kathaleen McCormick wrote in her 2024 opinion.
Tesla countered that decision by asking shareholders to vote again on the package in June 2024, a referendum that passed with more than 70 per cent in support. McCormick ruled in December 2024 that the second vote could not over-rule her first decision.
At an oral argument at the Delaware Supreme Court two months ago, the justices indicated they were focused on whether the cancellation of the plan was the correct penalty for the board’s flawed approval process.
In the opinion released on Friday, the court awarded nominal damages of just $1 for the Tesla board’s errors.
The Delaware Supreme Court, however, did award a $54.5mn fee to the lawyers who led the case for the plaintiff, Richard Tornetta, the Tesla shareholder who brought the initial lawsuit alleging the pay package was improper. The attorneys had initially asked for shares in Tesla worth $7bn, though the trial court had knocked that down to an award of $345mn.
A plaintiff lawyer at Bernstein Litowitz said on Friday: “We thank the justices for their attention, hard work and time on the matter and are considering our next steps. We are proud to have participated in the historic verdict . . . calling to account the Tesla board and its largest stockholder for their breaches of fiduciary duty.”
In November, Tesla shareholders approved a new pay package for Musk that could be worth $1tn if all operating and financial milestones are hit, though the Tesla board said it would withdraw that grant if the Delaware Supreme Court reinstated the 2018 package.
The original Delaware trial court decision prompted Musk to accuse the court of “absolute corruption”.
Tesla moved its incorporation to Texas, and several other large technology companies, including Dropbox and Coinbase, have since departed to either Texas or Nevada. Delaware, where the vast majority of large, US public companies are incorporated, has since tightened its corporate law to make suits such as the Musk pay package claim more difficult to bring by shareholders.
Credit: Source link
