“Tesla won its fight over a record-breaking pay package for Chief Executive Elon Musk that was approved by shareholders in 2018, ending the yearslong legal battle over his compensation that grew in value to total $139 billion.
In an opinion issued Friday, the Delaware Supreme Court said the lower court's ruling would have deprived Musk of compensation for several years of work, and therefore he should get the full pay package.
The court's opinion reversed the 2024 decision from Delaware's Chancery Court to rescind Musk's pay package after finding that Tesla's directors were beholden to its CEO and that the approval process for the pay deal was tainted and lacked transparency.
"Because it is the unmaking of an agreement, rescission is an extreme remedy and should only be granted by a court of equity when it is 'clearly warranted,'" the court wrote in the unsigned opinion.
Though Musk's pay package was reinstated, the five judges said they had "varying views" on Tesla's liability, and the ruling ultimately affirmed part of the lower-court decision.
They awarded $1 in nominal damages to Richard Tornetta, a Tesla shareholder who argued that Musk was unjustly awarded what was at the time the largest pay package in history.
The court also found that Tornetta's attorneys were entitled to some fees. The lower court had previously awarded them $345 million. In a statement, lawyers for the plaintiff said the case called "to account the Tesla board and its largest stockholder for their breaches of fiduciary duty."
The decision doesn't affect the more recent pay package that Tesla shareholders approved for Musk in November, which could earn the chief executive as much as $1 trillion over a 10-year period if the company meets a set of ambitious targets.
That package was issued under Texas law, where Tesla redomiciled last year, and which corporate attorneys say is likely to prove less hospitable to lawsuits like the one over Musk's 2018 pay.
To earn the full value of the 2025 package, Musk must increase Tesla's market capitalization to $8.5 trillion, which is more than five times its current value. If achieved, Musk would surpass the 25% voting control threshold that he has said he wants to stay at Tesla and build its artificial-intelligence business instead of focusing on his other companies.
But Friday's ruling makes it likely he will give up a second, $23.7 billion award known as the 2025 interim plan, which was designed to compensate him for some of the disputed shares but doesn't allow him to "double dip."
Musk's 2018 stock options have grown in value to $139 billion, which is more than the combined compensation realized by the CEOs of all other S&P 500 companies over the decade ended last year, according to Equilar, a pay data firm. At that valuation, the 2018 pay package is currently around 9% of the company's market capitalization.
Musk, the world's richest person, had worked at Tesla from 2018 to 2025 without pay beyond the disputed equity grant, though his personal wealth skyrocketed as Tesla's market cap surged to $1.6 trillion, where it now hovers.
Musk's 2018 pay package from Tesla was initially valued at more than $2.3 billion, shattering previous compensation records. It was contingent on Tesla meeting a series of market-value and operating targets. Meeting those targets delivered the underlying stock options to him, while dramatic share-price appreciation swelled their value many times over.
The court's decision brings an end to the legal battle brought on by Tornetta, the Tesla shareholder who sued in 2018, arguing that Tesla's board had failed to meet Delaware's tough requirements for disclosure and fairness when dealing with a dominant shareholder.
In January 2024, Delaware Chancellor Kathaleen McCormick ruled in Tornetta's favor, finding the company hadn't been sufficiently transparent with shareholders and that Musk had exerted too much influence over the process that led to his pay package.
In the nearly-two years since that ruling, Tesla's board has aggressively campaigned for Musk's compensation plans both in and out of the courtroom, arguing that an ambitious package is necessary to keep his attention focused on the electric vehicle maker as it changes strategy to focus on robotics and artificial intelligence
Last year, the board tried to reinstate the 2018 package through a shareholder vote at the June 2024 annual meeting. Tesla shareholders approved the pay package for a second time with an overwhelming 72% majority, but the vote was largely symbolic because it didn't alter the court's ruling.
At the same time, shareholders approved the board's request to redomicile in the state of Texas, where it is headquartered, bringing an end to its legal relationship with Delaware. Musk and other Tesla shareholders have since become vocal advocates for other corporations leaving the East Coast state, which is popular with businesses due to its long history of corporate litigation.
In March, Tesla and board members appealed the lower court decision, arguing that stockholders twice approved the pay deal and that by attempting to nullify it, it would be unfair to investors. The board also contended that the lower court was flawed in concluding that Musk could coerce or dominate directors during compensation negotiations.” [1]
1. Tesla Wins Fight Over Musk Pay. Peterson, Becky; Francis, Theo. Wall Street Journal, Eastern edition; New York, N.Y.. 20 Dec 2025: A1.
Komentarų nėra:
Rašyti komentarą