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Elon Musk’s Tesla Earnings Plan Worth $56 Billion Overturned by Judicial Ruling

A Delaware judge has nullified Elon Musk’s $56 billion compensation package from Tesla.

He cited concerns over fairness and board oversight. 

Shareholder Lawsuit

Credit: DepositPhotos

The decision stems from a lawsuit filed by shareholder Richard Tornetta.

He argued that the pay package was excessive and that key milestones were expected to be achieved.

Compensation Plan Details

Credit: DepositPhotos

Under the compensation plan, Musk had the chance to secure 12 tranches of Tesla stock options.

He believed they would vest if the company achieved specific market capitalization and operational milestones.

Overly Excessive Package

Credit: DepositPhotos

The lawsuit was filed by Richard Tornetta, who was a shareholder in the electric vehicle maker, five years ago.

Tornetta claimed that the multi-billion-dollar pay package should be nullified.

His claim was that it was overly excessive and not in the best interest of shareholders.

Expectations vs. Achievements

The lawsuit argued that the key milestones for the pay package were difficult to achieve.

It raised questions about the plan’s legitimacy.

Proxy Statement Controversy

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The lawsuit further alleged that Tesla’s proxy statement misrepresented the independence of the Compensation Committee.

Furthermore, it alleged that the board accused Musk of devising the compensation plan.

Judge’s Ruling

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Judge Kathaleen McCormick ruled that the company’s board of directors failed to prove the fairness of the compensation plan.

She also criticized the flawed approval process.

Unfair Price

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McCormick concluded that Musk had too much control over the process.

She also mentioned that it led to an “unfair price” for the compensation package.

Flawed Approval Process

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The judge pointed out that Musk, as CEO and founder, dominated the process leading to board approval.

This raised concerns about independence.

Tesla’s Share Price

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Following the ruling, Tesla’s share price experienced a 3 percent drop in after-hours trading, reflecting investor concerns.

Elon Musk responded to the ruling on his platform X, formerly known as Twitter, expressing his dissatisfaction with Delaware as a corporate domicile.

Potential Relocation

Credit: LONDON, UNITED KINGDOM MAR 8, 2017: Tesla Motors showroom with multiple luxury Tesla cars inside. Tesla is an American company that designs, manufactures, and sells electric cars — Photo by ifeelstock

Musk initiated a poll on X, asking users if Tesla should consider changing its state of incorporation to Texas.

This is where its physical headquarters are located.

Spokesperson for Tesla

A Tesla spokesperson was contacted for further comment on the ruling.

However, no response was provided at the time of publication.

Shareholder’s Perspective

Credits: DepositPhotos

Richard Tornetta’s lawyer, Greg Varallo, praised the court’s decision, stating that it benefits Tesla investors by reducing the dilution caused by the massive pay package.

While the ruling is significant, it can be appealed to the Delaware Supreme Court, leaving the final outcome uncertain.

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