Introduction to the Legal Decision
A judge has ruled that the record-breaking $56bn (£47bn) pay award to Tesla chief executive Elon Musk will not be reinstated. This decision by the Delaware court comes after months of legal wrangling that still saw it passed through by shareholders and directors in the summer.
Judge McCormick’s Ruling
Judge Kathleen McCormick overturned her previous ruling in January when she commented that the members of this board were overly beholden to Mr. Musk.
Reactions from Elon Musk and Tesla
Reacting to the ruling, Mr Musk wrote on X: "Shareholders should control company votes, not judges."
Tesla has promised to appeal the ruling, terming it "wrong."
This decision, unless appealed, makes plain that judges and lawyers representing plaintiffs own Delaware corporations and not the owners of those corporations—the shareholders—Tesla wrote in a post on X.
Pay Package Details
Judge McCormick said the pay package would have been the largest ever for the boss of a listed company.
She stated Tesla was unable to demonstrate that the 2018 pay package was reasonable.
Musks Net Worth and Positioning
Mr Musk is the richest man on earth, with an estimated net worth of around $350 billion goes by the Bloomberg Billionaires Index currently. He is the CEO of X (formerly Twitter), SpaceX, and also Tesla.
He has used his platform to allow people to hear his opinions on everything, and his status only seems to be destined to rise again as it pertains to the 2024 United States presidential election in which Donald Trump comes out as a winner. The president-elect has appointed Mr Musk to head a newly established Department of Government Efficiency (or Doge) - like the dog-related meme.
Trump’s Appointment of Musk
Trump said that Doge would help the administration dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies.
Tesla Shareholder Vote and Legal Opinion
Pretty good combination: A vote by Tesla shareholders on the pay package that passed in June by 75%, the judge wasn't convinced the pay had to be this high, notwithstanding what she termed the "creative" arguments by Tesla lawyers.
Even were a stockholder vote to have ratifying effect, it could not do so here," she wrote in her opinion.
Class-Action Lawsuit and Awards
The same Tesla shareholder who had brought the class-action lawsuit against the company and Mr Musk was also awarded $345m as fees, but the $5.6bn in Tesla shares they had requested were not awarded.
Concerns About Conflict-of-Interest Laws
Some observers said victory for Mr Musk and Tesla would have dealt a blow to the conflict-of-interest laws of Delaware.
Not just minority investors are protected by the concept of rules about conflict, said Charles Elson of the University of Delaware's Weinberg Center for Corporate Governance. According to Mr Elson, Judge McCormick's opinion was well-reasoned.
"The board was not independent. The package was "way out of any sort of reasonable bounds," he said, and the process was dominated by the chief executive. "It's quite a combo."
Mr Elson said he expects Tesla may try to recreate a similar pay deal in Texas where the company relocated its legal headquarters earlier this year following the pay decision.
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