A judge in Delaware has canceled Elon Musk's $56 billion compensation package from Tesla, describing it as an "incredibly large sum" that did not treat shareholders fairly. Chancellor Kathaleen McCormick of the Delaware Court of Chancery stated that Musk would not be allowed to keep his $55 billion-plus pay package.
Following the ruling, Tesla's stocks fell approximately 3% in after-hours trading on Tuesday and continued to drop at the same rate on the NYSE in Wednesday's pre-market activities, with each share priced at $186.28.
Reacting to the ruling, Musk advised against incorporating companies in Delaware via a social media post.
Musk might appeal the decision regarding his compensation package, which has been cited as the most significant pay package in American corporate history, to the Delaware Supreme Court.
This decision follows a shareholder lawsuit initiated over five years ago. The accusers claimed that Musk and Tesla's directors had violated their responsibilities, leading to needless expenditure of company assets.
The plaintiffs in the lawsuit requested the cancellation of Musk's compensation package, awarded by Tesla's Board of Directors. They argued that Musk influenced the package and that it was negotiated by directors over whom he had considerable sway.
Musk has previously denied allegations that he had any influence over the packaging contract or that he attended any related meetings.
In her ruling, Judge McCormick reportedly questioned whether there was any need for Tesla to offer such a substantial package in order to retain Musk and meet its objectives.
Additionally, Judge McCormick stated that Musk had long-standing personal and professional relationships with Ira Ehrenpreis and Antonio Gracias, the compensation committee chairman and another committee member, respectively.
According to McCormick, the method used to approve Musk's compensation plan was severely flawed due to Musk's close ties with those negotiating on Tesla's behalf.
The judge further criticized Musk for controlling the negotiations process and adjusting it to suit his terms. She ruled that this approach led to an unfair outcome and that the entire process would need to be reconsidered, as requested by the plaintiff.
This ruling comes at a time when Tesla has highlighted its concerns about slowing growth rates, and as the electric vehicle industry reassesses demand.
Elon Musk is currently listed as the world's wealthiest individual in Bloomberg's Billionaires Index, with an estimated net value of $199 billion. However, Forbes magazine recently reported that he has been overtaken by Bernard Arnault, the founder and CEO of LVMH, a global leader in luxury goods.
