By Tom Hals
WILMINGTON, Delaware (Reuters) – Elon Musk has initiated an appeal to reinstate his $56 billion compensation from Tesla, citing legal errors made by a lower court judge in voiding the record-setting payment. The pay package, implemented in 2018, led to significant growth for the electric vehicle manufacturer. However, it was deemed unfair to shareholders by the Court of Chancery, despite their approval of the plan on two occasions, Musk argued.
According to the opening appeal brief filed by Musk and the current and former Tesla directors involved in the case, the decision to rescind the pay package by Chancellor Kathaleen McCormick in January 2024 was deemed “unfathomable.” The judge contended that the package favored Musk and Tesla without providing crucial information to shareholders prior to their vote of approval.
In response to the judge’s ruling, a new pay package was approved by Tesla shareholders in June, but this was dismissed as insufficient grounds for overturning the original decision. The revoked pay package granted Musk options to purchase approximately 303 million Tesla shares at a price of around $23 each, contingent upon the company achieving specified performance and valuation targets. As of Tuesday’s closing, Tesla stock was valued at $230.58.
Tesla has expressed concerns that creating a new pay package with a similar value could result in a substantial charge of $25 billion, underscoring the significance of the appeal in reinstating Musk’s compensation and maintaining his focus on Tesla. Musk has indicated a desire for increased ownership in Tesla or potential development of products outside the company. The appeal coincides with his involvement in President Donald Trump’s governmental efficiency initiative, known as DOGE, which has triggered protests outside Tesla dealerships and contributed to recent declines in the company’s stock value.
In the appeal brief, Musk and other defendants argued that Chancellor McCormick erroneously applied a stringent legal standard, known as entire fairness, in assessing the original pay package. They contended that the judge erred in determining that Musk’s substantial ownership stake in Tesla influenced the negotiation process, as well as in concluding that typical business relationships among directors constituted conflicts of interest. The defendants also disputed the judge’s criticism of Tesla’s pre-vote disclosures in 2018.
The application of the entire fairness standard, as described in the brief, was viewed as an invitation to Tesla shareholders to pursue legal action. The lawsuit was initiated by Richard Tornetta, a Tesla investor with a minimal stake in the company. Musk criticized the pay ruling and urged other companies to consider relocating out of Delaware, following in the footsteps of Tesla and SpaceX. Several companies, including Meta Platforms, TripAdvisor, and Trump’s media venture, have hinted at potential relocations or have already made the move.
Concerns of a potential exodus of companies from Delaware, dubbed “DExit,” prompted state legislators to explore amendments to corporate laws aimed
