October 5, 2024

TechNewsInsight

Technology/Tech News – Get all the latest news on Technology, Gadgets with reviews, prices, features, highlights and specificatio

Elon Musk sees Tesla's  billion payout deal overturned in court

Elon Musk sees Tesla's $56 billion payout deal overturned in court

  • Written by Mariko Aoi
  • Business reporter

Image source, Getty Images

A judge in the US state of Delaware has overturned a $55.8bn (£44bn) pay deal that electric car company Tesla awarded to Elon Musk in 2018.

The lawsuit was filed by a shareholder who said it was an overpayment.

Judge Kathleen McCormick described the compensation as an “unfathomable amount” that was not fair to shareholders, and said the process that led to the package being approved was “deeply flawed.”

It ruled that the contract should be cancelled.

The pay deal, set in 2018, was the largest ever in US corporate history, helping make Musk the richest person in the world. Bloomberg and Forbes estimated his net worth at between $198 billion (£162 billion) and $220 billion (£180 billion), as of November 2023.

Tesla's package tied Musk's compensation to performance goals, such as Tesla's stock price and profitability. He does not receive a salary.

But Richard Tornetta, a Tesla shareholder, launched legal action demanding the award be annulled, arguing that the businessman had been overpaid.

After years of legal wrangling, a week-long trial began in November 2022, with Tesla managers arguing that the huge pay award was designed to ensure that Mr. Musk, one of the world's most dynamic entrepreneurs, would continue to devote his attention to the company.

But in it Judgment 201 pages Delivering on Tuesday, Judge McCormick said Tesla executives were “influenced by the rhetoric” surrounding Musk’s “cool charisma.”

The judge said Mr Musk also had business relationships with another member of the compensation panel, Antonio Gracia, dating back more than 20 years.

After the ruling, Tesla shareholder Tornita's lawyer, Greg Varallo, said it was a “good day for the good guys,” in an email reported by Reuters.

In a post on X, formerly known as Twitter, Musk said: “Never incorporate your company in Delaware.”

“I recommend incorporating in Nevada or Texas if you prefer shareholders to decide things,” he added, then posted a poll asking his followers whether or not Tesla should “change its state of incorporation to Texas, home of its actual headquarters.”

The judge's ruling can be appealed to the Delaware Supreme Court.

Tesla shares fell about 2.5% in extended New York trading. They have lost more than 20% of their value so far this year.

In addition to being CEO and a major shareholder of Tesla, Mr Musk also owns several other companies including social media platform X, rocket company SpaceX, and brain chip company Neuralink.

After selling a large portion of his stake in Tesla to buy X, Musk currently owns about 13% of the electric car maker, but recently said he wants a larger stake in the company.

When Tesla rolled out Musk's original 10-year salary package in 2018, it attracted widespread public interest. Several shareholder advisory groups recommended voting against the plan, saying it was too generous.

Brian Quinn, a professor at Boston University School of Law, told the BBC that “it is difficult to justify a deal like this,” given Musk’s influence on the board.

Professor Quinn added: “He treats Tesla as his own, but even if he calls himself the 'Technology King of Tesla', he is not the majority owner.”

Musk also said he was concerned about Tesla's investments in artificial intelligence technology.

He said the current shareholder structure makes Tesla vulnerable to “takeover by questionable interests” and he wants more control over its direction.

“Unless that's the case, I'd rather build products outside of Tesla,” Musk added.