Bad news for the richest man in the world: A US court has declared Tesla boss Elon Musk’s billion-dollar salary package from the electric car pioneer invalid. “The verdict is in favor of the plaintiff,” said Judge Kathaleen McCormick in the state of Delaware on Tuesday, agreeing with a Tesla shareholder. Musk and Tesla could not show that the compensation agreed in 2018 – a share package with an estimated value of 56 billion dollars (52 billion euros) – was “fair”.
The judge did restrict that the cancellation of the mega deal does not automatically follow from the finding that the agreement was created under unfair circumstances. However, an annulment is the preferred solution in Delaware. “Plaintiff is entitled to annulment,” she wrote.
Musk responded to the court decision with just one short sentence on the short message service X, formerly Twitter: “Never register your company in the state of Delaware.” The Tesla share price fell by more than 3.5 percent in after-hours trading.
Tesla investor Richard Tornetta went to court against Musk, Tesla and several members of the Tesla board of directors. Tornetta accuses the 52-year-old multi-billionaire of “unjust enrichment”. At that time, the company boss was able to impose his conditions on the Tesla board of directors, which was not sufficiently independent.
The judge raised several questions in her approximately 200-page ruling. Had there been serious negotiations between Musk and Tesla about the extent of compensation? After all, the board of directors should be committed to the interests of the shareholders. And was it even necessary to offer Musk so much so that he would be more interested in the company’s economic success?
According to legal documents, Musk received stock options worth more than $52 billion over four and a half years after the electric car maker met its goals. Tornetta speaks of the largest salary ever awarded to a manager. His lawyers on Tuesday welcomed Judge McCormic’s decision, which is still subject to appeal. Musk can still appeal.
Musk defended his Tesla salary package during an interview in court in November 2022. When the share package was approved in 2018, investors thought “that we would fail and go bankrupt,” said the multi-billionaire. “We were in a pretty tough situation back then, we lost a lot of money. The probability of survival was extremely low.”
The automotive industry has been making fun of Tesla for a long time, Musk said. “They thought electric vehicles were a joke.” Tesla only achieved its breakthrough with the enormous success of its Model 3.
Musk’s current stake in Tesla is around 13 percent – he had sold shares on a large scale in order to buy Twitter for around $44 billion in 2022. He recently said that he first wanted control of a quarter of the voting rights before taking Tesla deeper into the business of artificial intelligence and robots.
Numerous US companies have their headquarters in Delaware because of the favorable tax rules. McCormick was also the judge in the legal dispute between Twitter and Musk, who wanted to withdraw from the purchase agreement. Shortly before the trial began, however, Musk gave in and completed the Twitter takeover.
According to the business magazine Forbes, as of Tuesday, Musk is the richest person in the world with a fortune of more than $210 billion, followed by the French luxury goods mogul Bernard Arnault. In addition to Tesla, the controversial entrepreneur also runs the space company SpaceX and bought the short message service Twitter, which has now been renamed X, in autumn 2022.
The South African-born entrepreneur is also active in several other sectors, including the booming topic of artificial intelligence (AI) and the construction of tunnels. Last weekend, his start-up company Neuralink, which specializes in brain implants, used a chip on a patient for the first time since it was founded in 2016.
