A Delaware judge has voided the $56 billion U.S. pay package of Tesla (TSLA) chief executive officer (CEO) Elon Musk.
In rendering her decision, Chancery Court judge Kathaleen McCormick said that Tesla’s board of directors failed to prove “that the compensation plan was fair.”
The ruling comes after a lawsuit concerning the pay package was filed by Richard Tornetta, a Tesla shareholder.
Musk now needs to return at least part of the $56 billion U.S. compensation he has received from Tesla, though it’s not yet known how much he will ultimately pay back to the company.
Musk can appeal the decision to the Delaware Supreme Court, though it’s not known if he will appeal.
The pay package that Tesla granted to Musk in 2018 was the largest compensation plan in U.S. corporate history. The package made Musk the world’s richest person.
That plan gave Musk 12 tranches of Tesla stock options, which would vest if the company’s market capitalization increased by $50 billion U.S. and Tesla achieved its revenue targets.
However, Judge McCormick ruled that shareholder Tornetta had proved that Musk “controlled Tesla” and that the process leading to the board’s approval of his compensation was “flawed.”
In her summation, the judge wrote: “Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan.”
In a tweet issued after the court’s ruling, Musk stated: “Never incorporate your company in the state of Delaware.”
Musk recently began arguing publicly for 25% voting control over Tesla. He currently owns 13% of the company’s stock.
Tesla’s stock has declined 23% so far in 2024 and is currently trading at $191.59 U.S. per share.
