Musk’s ‘unfathomable’ $56bn Tesla pay package voided by US judge

A Delaware judge has ruled that billionaire Elon Musk’s $56 billion Tesla pay package could be voided, calling the compensation “an unfathomable sum” that was not fair to shareholders, according to a court filing.

“The plaintiff is entitled to rescission,” the judge said in her ruling.

The court’s opinion directed Richard Tornetta, the Tesla shareholder who challenged the pay plan, to work with Mr Musk’s legal team on an order enacting the judge’s decision.

The ruling can be challenged at the Delaware Supreme Court.

The judge, Kathaleen McCormick of Delaware’s Court of Chancery, said the pay did not meet the standard of a fair price.

“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” she said.

Tesla’s agreement with Mr Musk is by far the largest compensation deal yet for an executive and it contributes a significant part of his fortune, which is one of the world’s largest.

Company directors argued during the week-long trial that the company was paying to ensure one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the electric vehicle maker.

Mr Tornetta’s lawyers said the Tesla board never told shareholders that the goals were easier to achieve than the company was acknowledging and that internal projections showed Mr Musk was quickly going to qualify for large portions of the pay package. They also argued that the board should have required Mr Musk to work fulltime at Tesla instead of allowing him to focus on other projects.

The package grants stock option awards allowing Mr Musk to buy Tesla stock at heavily discounted prices as escalating financial and operational goals are met. He must hold the acquired stock for five years.

Mr Musk qualified for all 12 tranches or performance targets in the plan. He was not guaranteed any salary.

Tesla’s value ballooned to briefly top $1 trillion in 2021 from $50 billion when the package was negotiated.

In July, Tesla’s directors agreed to return $735 million to the company to settle shareholder allegations brought in a separate lawsuit filed in 2020 that they overpaid themselves.

The lawsuit challenged options that were granted to directors starting in June 2017.