Elon Musk cannot keep $55bn Tesla pay package, judge rules
Elon Musk must give up a compensation package awarded by Tesla’s board of directors that is potentially worth more than $55bn (£43.4bn), a judge has ruled.
The Delaware court decision comes five years after a shareholder lawsuit targeted the Tesla chief executive and the directors. The company is incorporated in the state, with oversight for the tech giant resting there.
The defendants were accused of breaching their duties, resulting in a waste of corporate assets and unjust enrichment of Mr Musk.
Lawyers for the plaintiffs argued that the pay package was dictated by Mr Musk and was the product of sham negotiations with directors who were not independent.
Defence lawyers said the compensation package was fairly negotiated by a committee of independent directors, contained lofty performance milestones, and was affirmed by a shareholder vote that was not even required.
A general view of the Tesla gigafactory in Austin, Texas, U.S., February 28, 2023. REUTERS/Go Nakamura
A lawyer for Mr Musk and other other Tesla defendants did not immediately respond to an email seeking comment.
Mr Musk reacted to the ruling on X, the social media platform he owns, by telling his followers: “Never incorporate your company in the state of Delaware.”
He then went on launch a poll asking if he should incorporate Tesla in Texas, where the company’s largest physical presence is.
During a trial in November 2022, Mr Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.
However, the judge determined that because he was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.
“The process leading to the approval of Mr Musk’s compensation plan was deeply flawed,” Chancellor [judge] Kathaleen St Jude McCormick wrote.
“Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
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Ms McCormick specifically cited Mr Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias.
She also noted that the working group negotiating the pay package included general counsel Todd Maron who was Mr Musk’s former divorce attorney.
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“In fact, Maron was a primary go-between for Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”
Ms McCormick concluded that the only suitable remedy was for Mr Musk’s compensation package to be rescinded.
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
A number of European leaders have hit out at the terms of the United States and European Union trade deal.
Speaking after talks in Turnberry, Mr Trump told reporters it was the “biggest deal ever made” and will be “great for cars” as well as having a “big impact” on agriculture.
European Commission chief Ursula von der Leyen said the “big deal” would help bring “stability” to trade after months of turmoil over the threat of a trade war.
The US will impose 15% tariffs on most EU goods entering America, after Mr Trump had threatened a 30% levy.
But French Prime Minister Francois Bayrou said of the terms: “It is a sombre day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission.”
Long-time EU critic, Hungarian PM Viktor Orban, responded: “This is not an agreement … Donald Trump ate von der Leyen for breakfast, this is what happened and we suspected this would happen as the U.S. president is a heavyweight when it comes to negotiations while Madame President is featherweight.”
President Donald Trump shakes hands with European Commission chief Ursula von der Leyen in Turnberry. Pic: Reuters
Others welcomed news of an agreement but seemed resigned to the terms.
The deal includes $600bn (£446bn) of EU investments in the US, and the bloc will buy $750bn (£558bn) of US energy and also purchase American military equipment.
Mr Trump said: “I think it’s great that we made a deal today instead of playing games and maybe not making a deal at all.”
He said: “We are agreeing that the tariff… for automobiles and everything else will be a straight across tariff of 15%.” However, the 15% baseline rate would not apply to steel and aluminium, for which a 50% tariff would stay in place.
Ms Von der Leyen said: “We have a trade deal between the two largest economies in the world and it’s a big deal, it’s a huge deal. It will bring stability, it will bring predictability, that’s very important for our businesses on both sides of the Atlantic.”
She said the agreement would include 15% tariffs “across the board”, and it would help rebalance trade between the two large trading partners.
She said the levy rate was the “best we could get” regarding the car sector.
But she added that there was “no decision” on the spirits sector, which was one of those areas where the details in the framework trade deal would have to be examined in the coming weeks.
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Mr Trump had earlier said the main sticking point was “fairness”, citing barriers to US exports of cars and agriculture.
He went into the talks demanding fairer trade with the 27-member bloc and threatening steep tariffs to achieve that, while insisting the US will not go below 15% import taxes.
For months, Mr Trump has threatened most of the world with large tariffs in the hope of shrinking major US trade deficits with many key trading partners, including the EU.
In case there was no deal and the US had imposed 30% tariffs from 1 August, the EU has prepared counter-tariffs on €93bn (£81bn) of US goods.
Ahead of their meeting on Sunday, Ms Von der Leyen described Mr Trump as a “tough negotiator and dealmaker”.
The deal mirrors parts of the framework agreement the US clinched with Japan last week.
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