Tesla trashed a ruling that struck down the most generous pay package in human history, vowing to appeal on behalf of CEO Elon Musk in a case that could have broader implications for corporate America.
On Monday, a judge in the Delaware Court of Chancery Kathleen McCormick notified the defendants, including Musk, his fellow executives and the company itself, that they had failed to collectively notify Tesla owners that their CEO could dictate the terms of own compensation.
her final decision on the case reverses a previous shareholder approval in 2018, which granted him options that can be converted into 304 million shares of the company at a 93% discount to the current price.
The automaker said it will now take its case to the Delaware Supreme Court, arguing that its ruling didn’t just prevent Musk from getting what’s due to him.
Far worse McCormick was, in fact, cheating shareholders from the allocation of the package in the first place.
At Monday’s closing price of $357.09 a share, it is worth a net $101 billion after factoring in the cash required to exercise the options.
“A Delaware judge just overruled a majority of Tesla-owning shareholders who voted twice to pay Elon Musk what he’s worth,” from the company he said on Monday. “The court’s decision is wrong and we will appeal.”
Compensation challenges
Musk’s unprecedented net worth, which exceeds $335 billion, complicates the design of the new pay package.
The original 2018 deal required Tesla to pay $2.3 billion, a huge amount for most CEOs but relatively insignificant for Musk today.
Judge McCormick criticized Tesla’s board, including chairwoman Robyn Denholm, for not acting independently in 2018.
Denholm, who has sold more than $75 million in Tesla stock this year, testified that her role at Tesla has brought her “life-changing wealth.”
Fallout in Silicon Valley
The ruling sparked a debate about Delaware’s status as a leading state for incorporation.
Critics, including venture capitalist Bill Gurley, warn that the decision could force companies to relocate to states like Nevada, which are considered more business-friendly.
Gurley called Musk’s package “one of the most shareholder-aligned incentive deals ever” and argued that Tesla’s meteoric rise since 2018 proves it wasn’t overblown.
“This is a victimless crime and that’s what makes Delaware look like a kangaroo court,” he added.
Next steps for Tesla
Tesla’s appeal to the Delaware Supreme Court faces high odds. Judge McCormick dismissed the June ratification vote as insufficient to correct earlier fiduciary failures.
Some analysts believe the case could escalate to the US Supreme Court, where a conservative majority may be more sympathetic to Tesla’s arguments.
Tesla shares closed Monday at $357.09, with Musk’s challenged options still hanging in the balance.
