A judge cancels Elon Musk’s $56 billion Tesla bonus, sending shares falling

Tesla’s share price slid about 3% in after-hours trading following news of the decision.

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The pay package of Elon Musk, CEO of Tesla, was declared null and invalid by a judge in Delaware on Tuesday. The judge said that the company’s board of directors did not provide sufficient evidence to demonstrate “that the compensation plan was justified.”

Following the announcement of the ruling in the case that was filed by Richard Tornetta, a shareholder in the electric automobile manufacturer, the share price of Tesla dropped by almost three percent during trading that took place after regular business hours on Tuesday.

According to the judge, the remuneration package that Tesla provided to Musk in 2018 was the greatest compensation plan in the history of public corporations. This made Musk, the CEO of Tesla and SpaceX, a centi-billionaire and the richest person on the planet.

An opportunity to acquire twelve tranches of Tesla stock options was presented to Musk as part of the plan. These options would become exercisable if the market value of the firm climbed by fifty billion dollars and Tesla met a revenue objective.

“Did the richest person in the entire globe receive unequal compensation?” questioned Judge Kathaleen McCormick of the Chancery Court in her judgment that was two hundred pages long. In this derivative litigation, the shareholder plaintiff has stated that this is the case. He contends that the directors of Tesla, Inc. violated their fiduciary duty when they granted Elon Musk a performance-based equity pay plan.

McCormick concluded that Tornetta had demonstrated that Musk “controlled Tesla” and that the procedure that led to the board’s acceptance of his remuneration was “deeply flawed.” McCormick’s opinion reached this conclusion.

The individuals who were charged with negotiating on Tesla’s behalf included management members “who were beholden to Musk.” Among these individuals was General Counsel Todd Maron, who was Musk’s “former divorce attorney.” Musk had “extensive ties with the persons tasked with communicating with Tesla.”

According to what the court stated, “In the end, Musk initiated a process of self-driving, readjusting the speed and direction along the way as he deemed appropriate.” A price that was not reasonable was determined by the procedure. Because of this action, the plaintiff is requesting that the product be recalled.

A letter sent by McCormick said that the plaintiff has the right to rescission.

“The parties are to confer on a form of final order implementing this judgment and submit a joint letter stating all problems, including fees, that need to be resolved to bring this matter to a close at the trial level,” McCormick stated. “This decision will be implemented by the terms.

It has been requested by CNBC that Musk, his attorney, and Tornetta’s counsel provide their remarks about the ruling.

The statement was made by Musk in a tweet that was sent out late on Tuesday afternoon.

“Never incorporate your company in the state of Delaware.”

McCormick stated that the basis for her decision was the conclusion that Musk, not the company’s shareholders or board of directors, was in charge of Tesla—at least when it came to deciding how much he would be paid.

In addition to owning a 21.9% equity stake, the judge stated that Musk was a “Superstar CEO” who held some of the most powerful positions in the company, including founder, CEO, and chair. He also had close relationships with the directors who were in charge of negotiating on Tesla’s behalf and controlled the procedure that resulted in the board approving his compensation plan.

The court determined that Tesla and Musk’s legal team “were unable to prove that the stockholder vote was fully informed because the proxy statement misleadingly omitted details about the process and inaccurately described key directors as independent.”

Musk started vying for 25% of Tesla’s vote power earlier this month.

At the moment, he directly holds around 13% of the company’s equity.

“I find it unsettling that Tesla is leading the way in robotics and artificial intelligence without having around 25% of the vote. “Enough to be influential, but not so much that I can’t be overthrown,” he said in a post on X, the social networking site formerly known as Twitter.

Musk manages and owns X.

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