Tesla loses bid to restore Elon Musk’s record pay package

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A judge in Delaware rejected Tesla’s attempt to restore Elon Musk’s record $56bn pay package after previously striking it down as a breach of the fiduciary duty of the electric-car maker’s board, dealing a blow to the world’s richest man.

Judge Kathaleen McCormick wrote that Tesla’s unprecedented effort to push the 2018 pay package through a second time, four months after she first struck it down, was “creative”. But the board “had no procedural ground for flipping the outcome of an adverse post-trial decision based on evidence they created after trial,” she wrote.

The decision from the Delaware Court of Chancery tees up an expected appeal to the Delaware Supreme Court, which will decide how much weight the decision by Tesla’s shareholders to approve it has at a moment when Musk’s social and political power is at its peak.

Musk has gained the ear of US president-elect Donald Trump after spending more than $100mn on his re-election campaign. In return, Musk has gained sway over crucial cabinet appointments and made co-head of an advisory body that has vowed to dramatically shrink the federal budget.

The pay package of just over 300mn Tesla shares would only vest if the company hit a series of difficult stock price and operational targets. McCormick, in her original ruling in February, said the Tesla board that approved the package six years ago was too cozy with Musk, and that her analysis of the pay award showed that it could not be justified on any reasonable metric.

Tesla stock has surged 44 per cent this year, much of that coming after Trump’s election victory on November 5. That means the stock options in Musk’s pay package have soared in value to $108bn. If it is ultimately granted, the package would increase his ownership stake from just under 13 per cent to more than 20 per cent.

After McCormick struck down Musk’s pay package the first time, Tesla put identical terms — with enhanced disclosures — to a shareholder vote in June. It passed with 72 per cent support. Shareholders also approved a separate plan to reincorporate the company from Delaware, where the vast majority of big public US companies are listed, to Texas, where several other Musk-controlled companies are based.

Since the February decision, Musk has loudly complained about the Delaware corporate law court and has moved all of his companies incorporations to either Nevada or Texas. Delaware’s status as the premiere destination for public companies’ legal domiciles has since become a lingering issue for the state.

Last month, Musk posted on his social media platform X: “When there are egregiously wrong legal judgments in a single state that substantially harm American citizens in all other 49 states, the Federal government should take immediate corrective action.”

Lawyers for the shareholder who brought the original suit were also awarded $345mn in fees, instead of the $5.6bn in Tesla shares that they had requested, according to Monday’s decision.

Lawyers at the firm Bernstein Litowitz, who had represented the Tesla shareholder who brought the suit, had said that based on the $56bn value of the cancelled stock grant, they were owed $5.6bn in shares. McCormick rejected that, however. She said that the lower amount of $345mn, payable in cash or Tesla stock, was sufficient, estimating that the value returned to shareholders was closer to $2.3bn, pointing to an accounting charge it took in 2018.