A Delaware judge has upheld her decision requiring Tesla to rescind Elon Musk’s multibillion-dollar compensation package from 2018, marking a pivotal development in a lawsuit brought by a Tesla shareholder.
Chancellor Kathaleen St. Jude McCormick on Monday rejected a request by Musk’s and Tesla’s attorneys to overturn her earlier ruling, which concluded that the package was engineered through sham negotiations with non-independent directors. The compensation plan, initially valued at up to $56 billion, fluctuated over the years based on Tesla’s stock price.
McCormick also denied a massive $5.6 billion legal fee request from the shareholder’s attorneys, who argued their work resulted in a $51.4 billion benefit to Tesla by preserving shares that would have gone to Musk. Instead, the judge approved a $345 million fee award, describing the original ask as “a bold” but excessive demand.
“In a case about excessive compensation, that was a bold ask,” McCormick wrote, adding that the final fee reflects “an appropriate sum to reward a total victory.”
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Defense attorneys argued that Tesla shareholders overwhelmingly re-ratified Musk’s pay package in a June vote, asserting this demonstrated shareholder approval despite the flaws in the original negotiation process. However, McCormick dismissed their arguments, calling them “fatally flawed.”
“A stockholder vote standing alone cannot ratify a conflicted-controller transaction,” she wrote in her 103-page opinion, citing material misstatements in Tesla’s proxy statement that rendered the second vote invalid.
The landmark compensation package was crafted in 2018, granting Musk stock options tied to Tesla’s performance milestones. Shareholders questioned whether it was negotiated fairly, given Musk’s dominant role at the company.
While Tesla shareholders initially approved the deal, McCormick ruled in January that the package was improperly influenced by Musk and lacked genuine oversight.
