- By Mariko Oi
- Business reporter
Image source, Getty Images
A judge in the US state of Delaware has annulled a $56bn (£44bn) pay deal awarded to Elon Musk in 2018 by the electric car company Tesla.
The lawsuit was filed by a shareholder who argued that it was an overpayment.
Judge Kathaleen McCormick ruled that the Tesla board’s approval of the pay package was “deeply flawed.”
In a post on X, which is owned by Mr Musk and formerly known as Twitter, he wrote: “Never incorporate your company in the state of Delaware”.
The pay deal was the biggest ever in corporate history, helping to make Mr Musk one the richest people in the world.
During the week-long trial, Tesla directors argued the deal was made to ensure that one of the world’s most dynamic entrepreneurs continued to dedicate his attention to the company.
But the judge ruled that Tesla and Mr Musk’s attorneys “were unable to prove that the stockholder vote was fully informed”.
In her 200-page ruling, Judge McCormick called the compensation “an unfathomable sum” that was not fair to shareholders.
The judge also said the compensation package had been negotiated by Tesla’s directors who had been “swept up by the rhetoric” surrounding Mr Musk’s “superstar appeal”.
Greg Varallo, an attorney for the Tesla shareholder Richard Tornetta who brought the lawsuit in 2018, said it was a “Good day for the good guys,” in an email reported by the Reuters news agency.
The ruling can be appealed to the Delaware Supreme Court.
The pay deal was the biggest ever in corporate history, helping to make Mr Musk one the richest people in the world.
Shares in Tesla were down by around 3% in extended New York trade. They have lost more than 20% of their value so far this year.
Mr Musk also posted on X: “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters”. He then posted a poll asking his followers whether or not Tesla should “change its state of incorporation to Texas, home of its physical headquarters”.
As well as being the chief executive and a major shareholder of Tesla, Mr Musk also owns the social media platform X, the rocket company SpaceX, and the brain chip firm Neuralink.
Mr Musk said he is concerned about Tesla’s investments in artificial intelligence (AI) technology.
He said the current shareholder structure makes Tesla vulnerable to a “takeover by dubious interests” and he wants more control over its direction.
“Unless that is the case, I would prefer to build products outside of Tesla,” Mr Musk added.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
