Musk's $56 Billion Pay Package Rejected Again by Delaware Judge

Tesla CEO Elon Musk’s ambitious $56 billion pay package has been officially rejected for a second time, as determined by a Delaware court. Judge Kathaleen McCormick had previously ruled in January against the reinstatement of what would have been the most lucrative pay deal for a CEO of a publicly traded company, citing that the Tesla board was unduly influenced by Musk when they approved the pay structure.

In a ruling that unfolded after months of legal disputes, Musk’s assertion was that shareholder approval—garnering a 75% vote in favor during June—should validate the pay package. However, the judge maintained that even with shareholder support, the proposed compensation was excessive and not justifiable under corporate governance laws. The court’s decision comes as a significant blow to Musk, who took to social media platform X to express his discontent, arguing that it is shareholders, not judges, who should control corporate decisions.

Tesla has expressed its intention to appeal the ruling, describing the court’s decision as fundamentally flawed. The company stated on X that allowing judges to dictate company operations undermines shareholders’ rights. Judge McCormick explained her viewpoint by noting that Tesla did not sufficiently demonstrate that the pay package was fair, despite attempts by Tesla’s legal team to present what she termed ‘creative’ arguments.

In addition to rejecting the pay package, the court ruled to award the plaintiff, a Tesla shareholder who initiated the suit against Musk and the company, with $345 million in legal fees, but denied the demand for $5.6 billion in Tesla stock. This outcome reflects the judge’s stance on maintaining conflict of interest standards in corporate governance, emphasizing that such rules exist to protect the interests of all investors rather than favoring those in positions of authority.

Corporate governance experts, including Charles Elson from the University of Delaware’s Weinberg Center for Corporate Governance, remarked on the implications of the ruling. Elson noted that the combination of a non-independent board, Musk’s dominant influence over the approval process, and the excessive nature of the compensation package exemplified a severe conflict of interest. He highlighted the decision as well-reasoned and anticipates that Tesla may attempt to propose a similar pay structure in Texas, where the company recently relocated its legal headquarters.