'Unfathomable Sum': Elon Musk's $56-Billion Tesla Pay Deal Blocked By US Judge

A judge in Delaware, US, has invalidated a substantial $55.8 billion pay agreement granted to Elon Musk by Tesla in 2018. The legal challenge stemmed from a shareholder who contended that the compensation was excessive. Judge Kathaleen McCormick concluded that the approval process by the Tesla board for the pay package was "deeply flawed," as reported by the BBC.

Elon Musk, the billionaire entrepreneur and Tesla CEO, expressed his sentiments on the matter through a post on his platform X, formerly known as Twitter. He advised against incorporating companies in the state of Delaware, where Tesla is currently registered.

The contested pay deal, the largest in corporate history, played a pivotal role in elevating Elon Musk to one of the wealthiest individuals globally. Throughout the week-long trial, Tesla directors argued that the compensation was necessary to ensure Musk's continued commitment to the company. However, Judge McCormick determined that the board failed to prove the stockholder vote was fully informed and highlighted Musk's extensive ties with those negotiating on Tesla's behalf.

Brian Quinn, a professor at Boston College Law School, noted, "Given the judge found Mr. Musk to be in control of the board, it's hard to justify a transaction like this."

In her 201-page ruling, Judge McCormick criticised the compensation as an "unfathomable sum" that did not serve the interests of shareholders. She also pointed out that Tesla's directors were influenced by Musk's "superstar appeal" during the negotiation process.

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As reported by the BBC, Greg Varallo, an attorney representing the Tesla shareholder who initiated the lawsuit, described the ruling as a "Good day for the good guys." While some expressed concerns about the size of the pay, others, like Ray Wang, founder and CEO of Constellation Research, emphasised the importance of informing the compensation committee properly.

The decision is subject to appeal, and it can be brought before the Delaware Supreme Court. Following the news, Tesla's shares experienced a 3 per cent decline in extended New York trade, contributing to a cumulative loss of over 20 per cent in their value this year.

Elon Musk, not shying away from expressing his views on the matter, urged companies to consider incorporating in Nevada or Texas for shareholder-centric decision-making. He conducted a poll on his platform to gauge his followers' opinions on whether Tesla should change its state of incorporation to Texas, where the company's physical headquarters is located.

As per the BBC, Professor Quinn cautioned that the decision about Tesla's incorporation state should be left to shareholders rather than Musk's Twitter followers. Despite Musk's influential role as Tesla's CEO and a major shareholder, he emphasised the necessity of shareholder input in crucial decisions.

In addition to being the CEO and a significant shareholder of Tesla, Elon Musk owns various other companies, including the social media platform X, SpaceX (a rocket company), and Neuralink (a brain chip firm). Recently, Musk expressed concern about Tesla's investments in artificial intelligence (AI) technology, stating his discomfort growing Tesla without having a 25 per cent voting control. He argued that the current shareholder structure exposes Tesla to potential takeovers by "dubious interests" and expressed a desire for more control over the company's direction. Musk suggested that if this control is not attainable, he would prefer to develop products outside of Tesla.