US judge voids Elon Musk's $56bn pay package

Tesla CEO Elon Musk, currently the world’s wealthiest individual, faces the potential loss of Tesla shares valued at $55.8 billion after a Delaware judge ruled against the fairness of a pay package granted by Tesla’s board of directors. The ruling came in response to a lawsuit filed by shareholder Richard Tornetta, who contested the legitimacy of Musk’s compensation.

The controversial pay package, initiated in 2018, outlined that Musk would receive approximately 1% of Tesla’s equity each time the company achieved one of 12 specified tranches of operational and financial objectives. In 2022, Musk acquired Tesla shares amounting to $55.8 billion through this arrangement.

Tornetta, an investor with nine Tesla shares, initiated the lawsuit in October 2022, arguing that Musk’s compensation plan was “historically unprecedented.” Tornetta contended that Musk exerted pressure on the board to approve the package and accused Tesla of failing to disclose crucial information to its shareholders.

The situation intensified after Tesla acquired Twitter, subsequently renamed X, by selling Tesla shares. This move fueled discontent among shareholders, including Tornetta, who alleged that Musk’s attention to Twitter, amid the heightened competition in the electric vehicle industry, reflected negligence in managing Tesla during a critical period.

Chancery Court Chancellor Kathaleen McCormick, who presided over the case, ruled that Musk held significant influence over the board, effectively controlling their decisions. Notably, McCormick had previously overseen a lawsuit involving Musk and Twitter, where Musk sought to break his contract to purchase the social media platform.

Should Musk face an unfavorable outcome in the appellate court, Tesla may be required to propose a reduced pay package, consequently diminishing the value of Musk’s assets. Additionally, Musk’s ambitious goal of increasing his stake in Tesla from 13% to 25% could face impediments.


Hyoun-Soo Kim kimhs@donga.com