Judge denies Elon Musk's billion-dollar Tesla pay package for a second time

The requested $6 billion in lawyers' fee was also denied

by · TechSpot

Serving tech enthusiasts for over 25 years.
TechSpot means tech analysis and advice you can trust.

What just happened? What's worse than having a multi-billion compensation package denied to you by a judge? Having it denied a second time, despite being overwhelmingly re-approved by Tesla shareholders. That's the situation Elon Musk has found himself in after Delaware judge Kathaleen McCormick upheld her original ruling that called the payment excessive. She also denied a request from lawyers who brought the case to be paid $6 billion.

In January, McCormick rejected arguments that the 2018 $56 billion compensation was essential to ensure Musk dedicated his attention to Tesla. The judge said Musk had individually "controlled Tesla" and dictated the terms of his compensation.

Following the ruling, Tesla held a shareholder vote in June that asked investors to once again ratify Musk's pay plan, which is now worth more than $100 billion following a 44% rise in Tesla's share price since January. It was re-approved by 84% of shares not held by Musk or his brother, Kimbal Musk. After it was approved, Musk took to the stage at a Tesla event to proclaim, "I just want to start off by saying, hot damn, I love you guys!"

McCormick denied the motion to reverse her decision on Monday. She wrote that while the defense firms got "creative" with the ratification argument, "their unprecedented theories go against multiple strains of settled law."

Musk's pay package of 300 million Tesla shares was directly linked to the company's performance. He receives no salary from Tesla. McCormick wrote that while Musk is entitled to some form of compensation, the award was not fair to shareholders.

"There were undoubtedly a range of healthy amounts that the Board could have decided to pay Musk," she wrote. "Instead, the Board capitulated to Musk's terms and then failed to prove that those terms were entirely fair."

// Related Stories

If the pay package is approved, Musk's ownership in Tesla will increase from 13% to more than 20%. He previously warned that if his ownership in the company was not increased to around 25%, he would cut back on its development of AI and robotics.

Tesla said it will appeal the latest decision. "This ruling, if not overturned, means that judges and plaintiffs' lawyers run Delaware companies rather than their rightful owners – the shareholders," it said.

"Shareholders should control company votes, not judges," Musk wrote in an X post.

In March, it was revealed that the three law firms that represented shareholder Richard Tornetta, who filed the initial lawsuit against Tesla, were asking for the equivalent of $6 billion in the EV giant's stock as payment, equal to around $288,888 per hour. McCormick ordered Tesla to pay the attorneys just $345 million.

In retaliation for McCormick's first rejection, Musk changed SpaceX's state of incorporation from Delaware to Texas. In June, he repeated the move with Tesla.