A Delaware judge ruled Tuesday in favor of the small investor who challenged the $55 billion payment awarded to Elon Musk as head of Tesla. The plaintiff, owner of nine shares of the electric vehicle maker, sued the company in 2018 for “excessive and unjust enrichment,” which he would later also own Twitter (currently X), and for believing that board members did not act on them independently by unlawfully allowing him to decide the details of the compensation plan according to his wishes. The tycoon assured the court in November 2022 that he had no role in the final determination of the level of remuneration, explaining that his only objective in taking over the management was to make a pioneering company viable in the sustainable automotive sector.
Judge Kathaleen St. J. McCormick's ruling comes more than five years after the electric car maker's co-founder received the largest executive compensation plan in history. Tesla's board of directors must submit a new proposal, with Richard Tornetta, the small shareholder, invited to formulate it by court order.
The ruling can be appealed to the Delaware Supreme Court. Tesla shares fell 2.8% in after-hours trading.
The ruling leaves the future of Musk's fortune in limbo. With a value of around $51.1 billion, options were one of the most valuable assets. Without it, his net worth would fall to $154.3 billion, making him the world's third-richest person, according to the Bloomberg Billionaires Index, after spending most of the past two years at No. 1.
Stock options in his compensation plan have gradually accumulated over the past few years as performance goals have been met, but he has not yet exercised any of the options, regulatory filings show.
During the week-long trial, officials at Tesla, the world's most valuable automaker, argued that the company was paying for one of the world's most dynamic entrepreneurs to continue to devote his attention to the electric vehicle maker, given his diverse business interests and the risk of distraction from their venture. Antonio Gracias, director of Tesla from 2007 to 2021, called the package a “great deal for shareholders” because, he said, it led to the company's extraordinary success, which was called into question by the accidents of some of its models.
Tornetta, the small shareholder, was unhappy with the explanation and considered excessive the payment received from Musk, who claims he never discussed it with the board, much less dictated or enforced the terms of the agreement. However, the case documentation shows that on April 8, 2017, the businessman was asked in a text by his friend Ira Ehrenpreis, a Tesla board member, how he should calculate his future compensation. Musk responded that he should eventually “own 10% of the company” under a compensation plan based on a set of goals that would gradually grant him 1% of outstanding shares. Musk later commented in an email to one of the co-founders that he was “planning something really crazy but also high risk.”
Musk competed several times with French luxury czar Bernard Arnault for the title of richest man in the world. If the Delaware judge's ruling is upheld, he will have to settle for second place in the billionaires' club.
The Delaware ruling invalidating the payment plan is the billionaire's second defeat in court after he failed to convince an appeals court last May to let him out of a settlement with the Securities and Exchange Commission the year 2018. of the United States (SEC, in its English acronym; (Security Securities and Exchange Commission) and the ability to tweet about Tesla without his lawyer's permission. Musk, who prides himself on flouting company rules, has nevertheless emerged victorious in other court battles.
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