Delaware Judge Rejects Elon Musk's Compensation Plan Again

A Delaware judge has once more invalidated a compensation plan for Tesla Inc. TSLA CEO Elon Musk. This ruling came on Monday, approximately six months after Tesla shareholders voted to approve the $56 billion pay package for a second time.

The Timeline: Delaware Chancery Court Judge Kathaleen McCormick initially ruled in January that the compensation package was void due to undue influence from Musk over Tesla's board during its adoption. Following this ruling, Tesla shareholders voted in June to reinstate the package.

Despite this, Judge McCormick ruled against the package yet again on Monday. In response, Tesla stated in a post on X that they believe the ruling is incorrect and plan to appeal to the Delaware Supreme Court. They emphasized that the judge's decision contradicted the opinion of a supermajority of shareholders. However, the appeal process could take up to a year.

What Comes Next: Tesla board chair Robyn Denholm indicated in June, before the shareholders' vote, that there are several potential avenues that could follow if the compensation package was rejected. The board considered the possibility of developing a new compensation plan, but this alternative could incur additional costs for shareholders or decrease motivation for the CEO. Denholm reported that a new pay scheme could cost shareholders an additional $25 billion through stock-based compensation.

The original 2018 pay package granted Musk stock options contingent on achieving specific performance and financial targets. Musk successfully met these targets, significantly increasing the value of the package. Initially valued at $56 billion, the package's worth has reportedly surged to over $100 billion along with the stock's recent climbs, especially following political developments.

According to Tesla, both creating a new compensation structure and maintaining the existing one could be financially burdensome. While a settlement in the ongoing lawsuit remains a possibility, it appears unlikely due to Musk's history of pursuing legal matters in court.

Tesla, Musk, Compensation