Tech billionaire Elon Musk faces a major threat to his fortune as a Delaware court ruled that he will not get the $55 billion compensation package approved by Tesla’s Board of Directors.
The case against the payment to Musk was filed by Tesla shareholder Richard J. Tornetta on behalf of all company shareholders back in April 2023. Tornetta accused Musk and his board of breaching their fiduciary duties by awarding the billionaire a performance-based equity-compensation plan worth roughly $55 billion.
In the Post Trial Opinion written by Chancellor Kathleen St. Jude McCormick, who oversaw the case, the judge described the plan “as the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.” The total amount would be “250 times larger than the contemporaneous median peer compensation plan,” she wrote.
Flawed process
In the ruling, McCormick wrote:
- “The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis.
- The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family regularly.
- “The working group included management members who were beholden to Musk, such as General Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition. Maron was a primary go-between Musk and the committee, and it is unclear on whose side Maron viewed himself. Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”
McCormick added that Musk and his team failed to meet its burden of “proving that the compensation plan was fair” during the five-day long trial.
Musk reacts
In his first public reaction to the ruling on Wednesday, Musk in a post via his X handle suggested that incorporating Tesla in Delaware was a mistake.
- “Never incorporate your company in the state of Delaware,” the billionaire posted.
In a separate post, he went further to say:
- “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”
Musk is also considering changing the state of incorporation of Tesla to another state as he created a poll asking his followers if he should do so.
- “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?” Musk asked in the poll.
Implications of the ruling
The ruling leaves the future of Musk’s fortune in limbo. Worth some $51.1 billion, the options were one of his most valuable assets. Without them, his net worth would drop to $154.3 billion, making him the third-richest person in the world after spending most of the past couple of years as No. 1, according to the Bloomberg Billionaires Index.