Largest Executive Compensation Plan in History
Plaintiff Claiming Invalidity Is a Small Shareholder Holding for 9 Weeks
Musk, "Do Not Incorporate Company in Delaware"
Elon Musk, CEO of Tesla, is facing the risk of having to relinquish Tesla shares worth $56 billion (approximately 74 trillion won).
The Delaware Court in the United States ruled in favor of the plaintiff on the 30th (local time) in the lawsuit filed by Tesla shareholder Richard Tornetta, which challenged the validity of Musk's 2018 approved compensation package.
Richard Tornetta filed the lawsuit in October 2022, claiming that when the Tesla board approved a $56 billion (approximately 74 trillion won) compensation package for Musk in 2018, they failed to disclose important information to shareholders. He also argued that since the board was effectively under Musk's influence, the approval of the compensation package should be considered controlled by Musk. At the time, Tornetta was a small shareholder who had held shares for only nine weeks.
Judge Catherine McCormick recognized that even a small shareholder plaintiff has the right to demand the cancellation of the board-approved compensation package. She further stated, "There are significant flaws in the process by which the board approved the defendant's (Musk's) compensation," and ruled that "the contract to provide the defendant with a record-breaking stock option package is invalid."
The controversial compensation package is based on Musk receiving up to 110 million stock options in 12 installments depending on Tesla's achievement of targets such as revenue and market capitalization, in lieu of salary and bonuses. Since the approval of the 2018 compensation plan, Musk is known to have received a substantial portion of the stock options based on Tesla's performance.
Musk's side immediately pushed back, arguing that the compensation plan was made through the board's autonomous decision and that it was necessary for Musk to remain the company's leader for a long period.
Musk himself testified, "Tesla has had a tremendous impact on the global automotive industry," and stated that "my compensation package is justified."
After the trial, Musk expressed dissatisfaction with the ruling on his social media platform X (formerly Twitter), saying, "Never incorporate your company in Delaware."
Since Musk's side is expected to appeal, the final judgment is likely to be made by a higher court.
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