In 2018, Tesla director Elon Musk negotiated a record-shattering $56 billion compensation package from the company. After years of legal wrangling, on Wednesday Delaware Judge Kathleen McCormick voided the package.
Ridiculous payout
In court, McCormick called the proposed payout “unfathomable” and unfair to shareholders. “Was the richest man overpaid?” she asked at the beginning of her 200-page opinion.
Petulant response
After the verdict, Musk tweeted, “Never incorporate your company in the state of Delaware.” “She has done more to damage Delaware than any judge in modern history,” he claimed a few days later.
The problem
While Musk is furious, financial experts welcomed the ruling as a “dose of sanity into the process of handing out executive rewards.” That’s what Nils Pratley wrote in the Guardian, in which he argued that the $56 billion sum was “always absurd.”
Powerful figure
As McCormick explained in her opinion, Musk had extensive control over Tesla. As well as his 22% stake, he enjoyed a public position as its “superstar CEO.”
Deep ties
Musk also had extensive ties to the “directors tasked with negotiating on behalf of Tesla,” McCormick wrote. She argued that seven of the eight directors were “all too willing to acquiesce to whatever wishes he demanded,” according to Fortune.
Ultimate influence
Musk “wielded the maximum influence that a manager can wield over a company,” McCormick argued. “Ultimately, the key witnesses said it all—they were there to cooperate with Musk, not negotiate against him.”
Some examples
The lead director negotiating for Tesla, Ira Ehrenpreis, has a business relationship with Musk stretching back 15 years. Antonio Gracias, another director, went on regular vacations with Musk and his family.
Ridiculous behavior
The company’s general counsel, Todd Maron, represented Musk in his divorce. As McCormick noted, his “admiration for Musk moved him to tears during his deposition.”
Shady situation
In his deposition testimony, Musk said the negotiation was essentially “me negotiating against myself.” Tesla’s proposal, McCormick explained, “inaccurately described key directors as independent and misleadingly omitted details about the process.”
Totally unnecessary
McCormick also dismantled the directors’ argument that the payout was necessary to retain Musk. Musk’s 22% stake gave him plenty of incentive to stay, he had given no indication that he was planning on leaving, and the board’s plan didn’t even place any requirements on Musk to devote time to Tesla.
Insane size
Musk’s proposed package is larger than the GDPs of 120 countries and territories and would take a person earning the federal minimum wage about 3.6 million years to make. It would be enough to give $163 to every person in the US.
Grudge
In October 2022, McCormick ruled that Musk couldn’t wiggle out of his commitment to purchase Twitter.
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