Musk could be US$55 billion poorer after setback in court – 01/30/2024 – Market

Elon Musk’s US$55 billion (R$273 billion) compensation package at Tesla was annulled by a Delaware judge, following a challenge from a minority shareholder. This decision would significantly reduce Musk’s wealth if it withstands a likely appeal.

This Tuesday’s ruling (30) means that, more than five years after the co-founder of the electric car manufacturer received the largest executive compensation plan in history, Tesla’s board will have to start over and present a new proposal.

The decision leaves the future of Musk’s fortune in suspense. With a value of around US$51.1 billion (R$254 billion), options were one of his most valuable assets. Without them, his net worth would fall to US$154.3 billion (R$766 billion), making him the third richest person in the world, after spending most of the last few years at number 1, according to Bloomberg Billionaires Index.

After a trial that began more than a year ago, Delaware Court of Chancery Chief Judge Kathaleen St. J. McCormick agreed with an investor who complained that the 2018 package lacked adequate disclosures about required performance targets of Musk and that the board had conflicts of interest in approving it.

Musk, 52, topped Bloomberg’s wealth list thanks to his stake in Tesla, the most valuable automobile company in the world, according to the value of shares traded on the stock exchange.

Stock options under the executive’s compensation plan have vested in installments over the past few years as performance targets have been met, but he has not yet exercised any of the options, regulatory filings show.

“Ultimately, Musk launched a self-driving process, recalibrating speed and direction along the way as he saw fit,” the judge wrote. “The lawsuit has come at an unfair price. And through this lawsuit, the plaintiff requests a recall.”

ANOTHER MUSK DEFEAT

The judge’s decision to invalidate the compensation plan followed another defeat for the billionaire in court, in which he failed to convince an appeals court in May to release him from a 2018 settlement with the U.S. Securities and Exchange Commission so that his Twitter posts about Tesla were reviewed. Musk, who prides himself on challenging corporate norms, has prevailed in several other court battles.

In the compensation case, Tesla shareholder Richard Tornetta alleged that board members failed to exercise independence in crafting the compensation package for his CEO and allowed him to improperly manipulate the details of his compensation plan according to his preferences.

Tornetta’s lawyers argued in documents in the Delaware Court of Chancery that Musk dictated the “financial scheme and terms, which remained fundamentally unchanged” during the board approval process.

The judge agreed that conflicts of interest rendered the process of the board’s consideration of the remuneration package flawed.

“The most striking omission from the lawsuit is the absence of any evidence of adversarial negotiations between the Board and Musk regarding the size of the grant,” McCormick wrote.

Musk’s defense failed to explain why the “historically unprecedented compensation plan” was necessary to motivate the CEO to achieve “transformational growth.” Musk had no intention of leaving Tesla, and his ownership stake was motivation enough to keep him focused on growth, the judge said.

“Carried away by the ‘all perks’ rhetoric or perhaps dazzled by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan really necessary for Tesla to keep Musk and achieve your goals?” she wrote.

Even as he awaited the court’s ruling, Musk urged Tesla’s board in January to organize another large stock grant for him, years after he sold a significant portion of his shares in the company to acquire Twitter.

Because Tornetta’s case targets Tesla directors over Musk’s compensation package, any recovery will go to the company rather than the shareholder.

It is not yet clear whether Musk will appeal Tuesday’s decision or whether Tesla’s board will work out a new compensation package.