Musk’s 2018 Tesla pay package must be restored, Delaware court rules

Elon Musk’s 2018 CEO salary package Tesla’sThe Delaware Supreme Court ruled Friday that nearly $56 billion worth of bonds must be reinstated when vested.

“We reverse the Cancer Court’s decision to annul and award nominal damages of $1,” the justices wrote in their opinion. he wrote.

In a decision handed down Friday, Delaware Supreme Court justices said a lower court’s decision to strike down Musk’s 2018 pay plan was too extreme a remedy and that the lower court didn’t give Tesla a chance to say what fair compensation should be.

Tornetta v. The appeal decision in this case, known as Musk, will likely end a years-long battle over Musk’s record-breaking compensation.

Musk’s 2018 CEO pay package, consisting of 12 milestone-based equity tranches from Tesla, was unprecedented at the time it was proposed. Once approved, the payment plan made Musk the richest individual in the world.

A shareholder named Richard J. Tornetta filed a derivative suit in 2018, accusing Musk and the Tesla board of breaching their fiduciary duties.

Delaware’s Court of Chancery, which specializes in business, ruled in January 2024 that the payment plan was improperly granted and ordered it rescinded.

In her decision, Chancellor Kathaleen McCormick also found that Musk “controlled Tesla” and that the process that led to the board approving the 2018 compensation plan was “deeply flawed.”

Among other things, it found that Tesla’s board failed to disclose to investors all the important information they needed to have before asking them to vote and approve the plan.

After the earlier Tornetta decision, Musk moved Tesla’s corporate headquarters out of Delaware, criticized McCormick by name in posts on his social network X, formerly known as Twitter, where he has tens of millions of followers, and called for other entrepreneurs to re-establish companies outside the state.

Tesla also sought to “approve” its 2018 CEO compensation plan by holding a second vote with shareholders in 2024.

As CNBC previously reported, a law firm currently representing Tesla in this appeal authored a bill earlier this year to overhaul corporate law in Delaware.

The bill was passed by the Delaware legislature in March, and if it had been applied retroactively it could have affected the outcome of the case.

Read the Delaware Supreme Court’s decisions decide here.

This is an evolving story. Please check back for updates.