A Delaware judge has reaffirmed her decision to invalidate Elon Musk’s multibillion-dollar pay package, ruling that Tesla must revoke the compensation arrangement. Chancellor Kathaleen St. Jude McCormick made the announcement on Monday, rejecting a request from Musk and Tesla’s corporate directors to vacate her earlier ruling.
Ruling Reaffirms Rejection of Pay Package
In January, McCormick ruled that Musk’s 2018 pay package was the result of sham negotiations and was not authorized by independent Tesla directors. The package, initially valued at $56 billion, fluctuated over time with Tesla’s stock price. McCormick concluded that Musk had engineered the deal with the board, which lacked independence, raising concerns about the fairness of the agreement.
Following her ruling, Tesla shareholders voted to ratify the pay package again in June, despite the flaws identified by the judge. However, McCormick dismissed arguments that this vote should invalidate her earlier decision, stating that the ratification did not change the fact that the process was flawed.
The Dispute Over the Stockholder Vote
Tesla’s defense attorneys argued that the second vote by shareholders, done with full awareness of the judge’s concerns, should have been enough to validate Musk’s compensation. McCormick, however, found this argument to be “fatally flawed.” She stated that a stockholder vote cannot ratify a conflicted transaction, especially when misstatements were made in the proxy statement provided to shareholders.
“The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” McCormick wrote in her 103-page opinion.
Fee Request Slashed
In addition to reaffirming her ruling on Musk’s pay package, McCormick also addressed the massive fee request made by the plaintiff’s attorneys. These attorneys had initially asked for $5.6 billion in legal fees, which the judge deemed excessive. Although she acknowledged the legal team’s work had resulted in a significant benefit to Tesla shareholders, she deemed the fee request a “windfall.”
McCormick ultimately awarded $345 million in legal fees, a sum she described as “an appropriate sum to reward a total victory.” This amount is roughly half the record $688 million in fees awarded in the 2008 Enron case.
Musk’s Response
Musk expressed his disagreement with the ruling on the social media platform X (formerly Twitter), which he owns, saying, “Shareholders should control company votes, not judges.”
