Judge rejects Elon Musk’s massive $156 billion Tesla pay package

Elon Musk’s massive record-setting pay packet from Tesla – worth about $A156 billion now – has been rejected by a US judge, again.

Elon Musk’s massive $55.8 billion ($A86.2bn) pay package from Tesla has been blocked by a US judge – again.

The chief executive’s 2018 compensation plan was originally backed by shareholders but became the subject of a trial in Delaware, where Tesla was incorporated, in 2022 when plaintiff Richard Tornetta, a Tesla shareholder, alleged that Musk dictated his terms to directors.

The pay program helped make Mr Musk the richest man in the world.

Chancellor Kathaleen McCormick of Delaware’s Court of Chancery rescinded the record-setting compensation package in January this year, saying it was excessive and unfair to shareholders.

Tesla shareholders then voted in June to reinstate the pay package, but Ms McCormick has now ruled that the vote cannot override her January decision.

The rejected pay package his worth about $A156 billion now. Picture: Allison Robbert / POOL / AFP

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The pay package was not a cash salary or bonus but stock options, allowing a person to purchase shares at a predetermined price.

While the package was worth about $US56 billion ($A86.5bn) when the court sensationally voided it in January, it is worth about $US101 billion ($A156bn) now.

Ms McCormick found multiple flaws in Tesla’s ratification attempt, including “material misstatements” in documents provided to shareholders about the effect of their vote.

“The motion to revise is denied,” she wrote in a court filing.

“The large and talented group of defense firms got creative with the ratification argument, but their unprecedented theories go against multiple strains of settled law,” she added.

The court also awarded $US345 million ($A532m) in attorney fees, significantly less than the $US5.6 billion (A$8.6bn) requested by the lawyers of Mr Tornetta.

While acknowledging their calculation method was technically sound under Delaware law, which bases fees on the percentage of benefit achieved, Ms McCormick ruled that such a large award would constitute an excessive windfall.

Tesla plans to appeal the decision. Picture: Brandon Bell/Getty Images/AFP

Tesla wrote on X, the social media platform Mr Musk owns, that it plans to appeal.

“A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth,” the post said.

“The court’s decision is wrong, and we’re going to appeal. This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders.”

During the trial in 2022, Mr Musk insisted that he played no role in coming up with the package nor discussed his deal with the board members, some of them close friends, who ultimately signed off on it.

Mr Musk argued that investors in Tesla were some of the “most sophisticated in the world” and able to keep tabs on his management.

He said Tesla had been the laughingstock of the auto industry, and it was only the massive success of the company’s Model 3 that turned things around.

Elon Musk and US President-elect Donald Trump, who named Mr Musk to head the new cost cutting Department of Government Efficiency. Picture: Brandon Bell/Getty Images/AFP

After the decision in January, shareholders expressed fear Mr Musk would leave Tesla or focus his attention elsewhere.

Mr Musk also owns SpaceX and X, and has become increasingly close with US President-elect Donald Trump. He announced after his November election win that Mr Musk would lead the new cost-cutting Department of Government Efficiency.

The Delaware Court of Chancery has been a pillar of US capitalism for more than a century and is the jurisdiction where roughly two-thirds of American Fortune 500 companies are registered.

Tesla shareholders approved Mr Musk’s plan to reincorporate in Texas earlier this year.

– with AFP