A Delaware judge ruled Monday that Tesla CEO Elon Musk still is not entitled to receive a $56 billion compensation package despite shareholders of the electric vehicle company voting to reinstate it.
The ruling by the judge, Chancellor Kathaleen McCormick of the Court of Chancery, follows her January decision that called the pay package excessive and rescinded it, surprising investors, and cast uncertainty over Musk’s future at the world’s most valuable carmaker.
Musk did not immediately respond to an emailed request for comment.
Tesla has said in court filings that the judge should recognize a subsequent June vote by its shareholders in favor of the pay package for Musk, the company’s driving force who is responsible for many of its advances — and reinstate his compensation.
McCormick said Tesla’s board was not entitled to hit “reset” to restore Musk’s pay package.
“Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable,” she said in her 101-page opinion.
She also said Tesla made multiple material misstatements in its proxy statement regarding the vote and could not claim the vote was a “cure-all” to justify restoring Musk’s pay.
“Taken together,” the problems with Tesla’s arguments “pack a powerful punch,” she wrote.
Tesla shares fell 1.4% in afterhours trade, following the ruling.
McCormick also ordered Tesla to pay the attorneys who brought the case $345 million, well short of the $6 billion they initially requested. She said the fee could be paid in cash or Tesla stock.
“We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into Court proceedings,” said a statement from Bernstein Litowitz Berger & Grossmann, one of the three law firms for the plaintiff.
The law firm also said it looked forward to defending the court’s opinion if Musk and Tesla appealed.
Musk and Tesla can appeal to the Delaware Supreme Court as soon as McCormick enters a final order, which could come as soon as this week. The appeal could take a year to play out.
After the January ruling, Tesla shareholders flooded the court with thousands of letters arguing that rescinding Musk’s pay increased the possibility he would leave Tesla or develop some products like artificial intelligence at ventures other than Tesla.
Attorneys for shareholder Richard Tornetta, who sued in 2018 to challenge Musk’s compensation package, had argued that Delaware law does not permit a company to use a ratification vote to essentially overturn the ruling from a trial.
McCormick in January found that Musk improperly controlled the 2018 board process to negotiate the pay package. The board had said that Musk deserved the package because he hit all the ambitious targets on market value, revenue and profitability.
But the judge criticized Tesla’s board as “beholden” to Musk, saying the compensation plan was proposed by a board whose members had conflicts of interest due to close personal and financial ties to him.
After the January ruling, Musk criticized the judge on his social media platform X and encouraged other companies to follow the lead of Tesla and reincorporate in Texas from Delaware, although it is unclear if any companies did so.
The judge in her January ruling called the pay package the “biggest compensation plan ever — an unfathomable sum.” It was 33 times larger than the next biggest executive compensation package, which was Musk’s 2012 pay plan.
As of Monday, the pay package was worth $101.4 billion, according to Equilar, a compensation consulting firm.
Musk’s 2018 pay package gave him stock grants worth around 1% of Tesla’s equity each time the company achieved one of 12 tranches of escalating operational and financial goals.
Musk did not receive any guaranteed salary. Tornetta argued that shareholders were not told how easily the goals would be achieved when they voted on the package.
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