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Elon Musk’s controversial $56 billion compensation package continues to be rejected. A Delaware judge again voided the deal, even though Tesla shareholders voted to reinstate it.
This decision fuels controversy over the relationship between Musk and the company’s board of directors, in addition to the limits of shareholder control.
A rejection that sets a precedent
Kathaleen McCormick, a Delaware Court of Chancery judge, stated that Tesla cannot “restart” the process to restore Musk’s compensation package. According to the judge, allowing this type of practice would unnecessarily prolong legal disputes.
McCormick noted that Tesla made false statements in its proxy statement, arguing that a ratification vote like the one in June should have occurred before the trial.
Additionally, he emphasized that Musk controlled his salary negotiations, negating any attempt to justify the subsequent decision.
Tesla arguments and Musk’s response
Tesla defended the need for Musk’s compensation package, calling it the main driver behind the company’s progress. The board argued that the billionaire met key valuation, revenue and profitability targets, thus justifying his remuneration.
After the ruling, Musk reacted on X, his social media platform, saying: “Shareholders should control company votes, not judges.”
For its part, Tesla described the decision as erroneous and announced that it will appeal to the Delaware Supreme Court as soon as the judge issues the final order.
A legal battle with financial implications
McCormick’s refusal has already had a tangible impact on Tesla. The company’s shares fell 1.8% in after-hours trading. However, the real blow may lie in investor confidence.
Tesla shares fall 1.8% in after-hours trading. Source: Google Finance
Some analysts, such as Gary Black of The Future Fund, believe the Delaware Supreme Court could take a more pragmatic approach. However, they warn that the appeal process could last more than a year.
Tesla shareholders worry about the impact the loss of this compensation package could have on Musk.
Since January, thousands of them have sent letters to the court, arguing that voiding pay increases the risk that Musk will turn his attention to other projects, such as artificial intelligence at companies other than Tesla.
This situation is complicated by Musk’s new informal role in Donald Trump’s government. Recently, the former president assigned him as co-leader of the Department of Government Efficiency.
Although the position does not formally interfere with his leadership at Tesla and SpaceX, it could influence his long-term priorities.
What does this compensation package represent?
The 2018 pay package gave Musk stock awards equal to 1% of Tesla’s equity each time he met one of 12 financial and operational goals. Initially valued at $56 billion, its current value rises to $101 billion due to the 42% increase in the share price since November.
Although the board argues that Musk deserved the reward for meeting all goals, critics claim that how achievable these milestones were was not adequately communicated to shareholders.
Shareholders divided, but active
As the controversy continues, Musk’s followers and minority shareholders have defended his leadership.
After the January ruling, many voted in favor of the compensation package in June, arguing that Musk is essential to Tesla’s success.
However, critics, including McCormick, point out that decisions like this set a dangerous precedent by allowing a controller with a conflict of interest to direct negotiations.
Payday for lawyers
The case not only affects Musk and Tesla, but also the plaintiffs’ lawyers. McCormick ordered Tesla to pay $345 million in legal fees, one of the largest sums in the history of securities litigation.
Although far from the $6 billion initially requested, this figure highlights the magnitude of the case.
And now what’s next for Musk and Tesla?
The case now depends on the Delaware Supreme Court, which will decide whether to uphold or reverse McCormick’s decision. Meanwhile, Tesla faces growing pressure to demonstrate its independence and improve transparency in its corporate governance.
This ruling could be a warning to other companies with concentrated leadership structures. It also raises questions about the balance between shareholder control and judicial oversight.
The legal battle is not over, but what is clear is that Musk’s future as Tesla’s leader, and his record compensation, will continue to be the center of public and legal attention.
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