Elon Musk’s $56 billion pay package is sunk by a judge despite Tesla shareholder votes
McCormick said that “the large and talented defense firms were creative in their ratification arguments, but their unorthodox theories went against many established law principles.” The company has since reincorporated in Texas from Delaware. Musk is also now a sort of right-hand man to President-elect Donald Trump, raising all kinds of questions about his priorities as the United States heads into a new administration.
McCormick also awarded the plaintiff’s attorneys a $345 million fee — payable in cash or Tesla shares — that is eye-popping, but still a fraction of the $5.6 billion those lawyers requested earlier this year.
Tesla awarded the compensation package to Musk in 2018, at a time when the electric automaker was in crisis. The package outlined a number of milestones Tesla had to reach in order to unlock its full value. These milestones were easily met by Tesla in the years following as it ramped up the Model 3 and Model Y program. His lawyers claimed that Musk had such a strong influence on the board and the company that negotiations were unfair. Tesla put the opinion up for a vote in its shareholder meeting in June to try to re-litigate this deal in public. The company issued a new proxy statement, which included McCormick’s January opinion. It argued that this would allow shareholders to be fully informed as they voted a second vote. The judge ruled that Tesla’s attorneys had “no grounds for reversing the result of an adverse post-trial decision on the basis of evidence created after the trial.” This was a “fatal flaw,” McCormick said. The second is more procedural: Tesla’s legal team considered the vote a “common-law” ratification, which is an affirmative defense, and those can’t be raised after a post-trial opinion is released.
Third, McCormick challenged the common-law ratification idea on its face. McCormick argued against Tesla’s argument that “stockholders have the right to adopt corporate acts that they believe are in their best interest.” McCormick argued this is “dubious in general and unquestionably wrong in the context” of how Musk’s control of Tesla’s governance.
