'Self-Driving Process:' Delaware Judge Voids Elon Musk's $56 Billion Tesla Compensation Package

In a major legal setback for Tesla CEO Elon Musk, a Delaware judge has voided his massive $56 billion compensation package granted by the electric vehicle maker in 2018. Ironically, the judge described the negotiations over his pay package as a “self-driving process,” even as Musk struggles to fulfill his promise of self-driving cars.

CNBC reports that Delaware Chancery Court Judge Kathaleen McCormick ruled on Tuesday that Elon Musk’s Tesla compensation plan, the largest ever awarded to a CEO, was unfair and failed to prove that Tesla’s board properly negotiated the package with Musk.

The judge found that Musk, who owned 21.9 percent of Tesla at the time, controlled the process leading to the board’s approval of the plan. She wrote that neither the compensation committee nor the board “acted in the best interests of the company” when negotiating the plan, with little evidence of actual negotiations taking place.

Elon Musk, chief executive officer of Tesla Inc., speaks via video link during the Qatar Economic Forum in Doha, Qatar, on Tuesday, June 21, 2022. The second annual Qatar Economic Forum convenes global business leaders and heads of state to tackle some of the world’s most pressing challenges, through the lens of the Middle East. Photographer: Christopher Pike/Bloomberg

In her decision, McCormick asked: “Was the richest person in the world overpaid? The stockholder plaintiff in this derivative lawsuit says so. He claims that Tesla, Inc.’s directors breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan.”

McCormick continued: “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”

Musk was granted the potential to earn 12 tranches of Tesla stock options if the company hit certain financial and operational milestones. This has made him the richest person in the world as Tesla’s value soared.

However, McCormick ruled that shareholder Richard Tornetta successfully proved the package was “unfair” and the process to approve it was “deeply flawed.” Tesla’s stock price fell around 3 percent after the ruling.

McCormick stated: “Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan. In fact, there is barely any evidence of negotiations at all. Rather than negotiate against Musk with the mindset of a third party, the Compensation Committee worked alongside him, almost as an advisory body.”

Musk tweeted his displeasure with Delaware’s legal system after the ruling and suggested moving Tesla’s incorporation to Texas. The ruling could force Musk to return billions of dollars worth of compensation already received. Both sides can appeal the decision.