Wilmington, Delaware - In a surprising turn of events, a Delaware court has annulled a record-breaking compensation agreement between Tesla, the renowned electric vehicle manufacturer, and its CEO, Elon Musk. The 2018 deal, worth an astonishing 55.8 billion USD (equivalent to 1.3 trillion Czech Koruna), has been deemed invalid, with significant implications for the business world and billionaire standings.
The decision, handed down by a judge in the corporate-friendly state of Delaware, could reshape Elon Musk's standing among the world's wealthiest individuals. This ruling stems from a lawsuit brought forth by a shareholder who argued the reward was excessively generous.
Tesla's board had approved the package, which was hailed as the largest in the company's history and possibly the biggest ever proposed by a U.S. corporation. It was structured to be paid out in increments upon achieving specific targets. However, the lawsuit alleged that Tesla misled investors by suggesting these targets were challenging to meet, while the plaintiff argued they were not as difficult as portrayed.
Judge Kathaleen McCormick's ruling highlighted the package's "unfathomably high" value and unfairness to shareholders. She pointed out that the deal was negotiated by executives swayed by Musk's persuasive rhetoric and charisma. Legal experts, like Professor Brian Quinn from Boston College, noted that justifying such a transaction is challenging when Musk is perceived to have control over the board.
In response to the ruling, Musk expressed his displeasure on his social media platform X, advising against starting a company in Delaware. Musk, Tesla's CEO and major shareholder, recently sold a significant portion of his Tesla shares to acquire the network X, formerly known as Twitter, and now holds about 13% of Tesla's shares. He has expressed concerns about Tesla's AI investments and desires a larger, 25% stake in the company.
This ruling arrives amid warnings from Tesla about slowing growth and a reassessment of demand in the electric vehicle industry. Under Musk's leadership, Tesla became the world's most valuable car manufacturer, much of its value based on expectations of breakthrough innovations like autonomous robotaxis.
Musk, who doesn't draw a salary as Tesla's CEO, would have seen the 2018 reward package valued at around 51 billion USD at Tesla's closing stock price on Tuesday - about a quarter of his estimated 210 billion USD fortune by Forbes. The package included options for approximately 304 million shares, purchasable at around 23.33 USD each, with Tesla's shares closing at 191.59 USD on Tuesday.
Equilar analyst Amit Batish in 2022 estimated Musk's package to be about six times higher than the combined income of the top 200 highest-paid executives in 2021, a fact highlighted by Reuters. Equilar specializes in executive compensation research.
This landmark decision raises significant questions about executive compensation, corporate governance, and shareholder rights, marking a pivotal moment in the intersection of law, finance, and corporate America.