Elon Musk’s $56bn Tesla pay package voided by Delaware judge

A judge has rejected a Tesla deal that helped its CEO, Elon Musk, receive a $56 billion pay package, propelling him to become the richest person in the world. Judge Kathaleen McCormick in Delaware called the compensation an “unfathomable sum,” ruling that he “failed” to prove that it was fair.

In her ruling, she wrote that Musk “enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” and deemed that there was a conflict of interest between the parties involved. The suit was filed by Tesla shareholder Richard Tornetta, who sued Musk and several Tesla directors in 2018, claiming that the pay package was unwarranted.

“The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf,” McCormick wrote.

She also referred to Musk as the “Superstar CEO,” who owned 21.9% of the company and held influential positions, allowing him to have “thick ties” with the directors who were negotiating the deal, and thus having significant influence over the approval process. The judge also agreed that Tornetta was also entitled to a “recission” as a remedy, directing Tesla and its shareholders to implement her decision and reverse the deal. However, Musk’s team retains the option to appeal her ruling.

Musk responded by conducting a poll on his platform, X, formerly known as Twitter, asking users whether Tesla should change its state of incorporation to Texas. He also criticized the decision by saying, “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.” At the time of writing, more than 88% out of 700,000 users called to move Tesla’s headquarters.

I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters

— Elon Musk (@elonmusk) January 31, 2024

Should Tesla change its state of incorporation to Texas, home of its physical headquarters?

— Elon Musk (@elonmusk) January 31, 2024

Tesla stocks tumble

Tesla’s shares dropped over 3% in after-hours trading, and as of Tuesday, the company’s market capitalization was approximately $600 billion. According to Bloomberg, the 201-page ruling could reduce Musk’s wealth, potentially making him the third richest person in the world.

The stock already took a dive last week after it released its fourth-quarter earnings, causing shares to fall more than 5% in extended trade.

Featured image: Canva / Debbie Rowe / The Royal Society

Suswati Basu

Freelance journalist

Suswati Basu is a multilingual, award-winning editor and the founder of the intersectional literature channel, How To Be Books. She was shortlisted for the Guardian Mary Stott Prize and longlisted for the Guardian International Development Journalism Award.

With 18 years of experience in the media industry, Suswati has held significant roles such as head of audience and deputy editor for NationalWorld news, digital editor for Channel 4 News and ITV News. She has also contributed to the Guardian and received training at the BBC As an audience, trends, and SEO specialist, she has participated in panel events alongside Google.

Her career also includes a seven-year tenure at the leading AI company Dataminr, where she led the Europe desk and launched the company's first employee resource group for disabilities. Before this, Suswati worked as a journalist in China for four years, investigating censorship and the Great Firewall, and acquired proficiency in several languages.

In recent years, Suswati has been nominated for six awards, including the Independent Podcast Awards, International Women's Podcast Awards, and the Anthem Awards for her literary social affairs show.

Her areas of speciality span a wide range, including technology, Diversity, Equity, and Inclusion (DEI), social politics, mental health, and nonfiction books.