Elon Musk has suffered a serious defeat in court that could cost him a significant portion of his fortune. A judge in the US state of Delaware has now annulled a salary package worth around $55 billion that the electric car manufacturer Tesla granted him in 2018. She took the side of a shareholder who had filed a lawsuit against Musk and Tesla. The shareholder described Musk's salary as excessive.
Musk can appeal the ruling. But if the decision is upheld, Tesla's board of directors would have to put together a new salary package for him and he could lose his title as the richest person in the world. He is currently ranked at the top of the “Bloomberg Billionaire Index” with assets of $204 billion. Behind him are Jeff Bezos, the founder of the online retailer Amazon.com, with $186 billion, and Bernard Arnault, the CEO of the French luxury group LVMH, with $184 billion.
Judge calls Musk's pay package “historically unprecedented” and “unfair”
Musk's salary package was very unusual. It gave him no base salary or bonuses. Instead, it provided stock options that were tied to the achievement of certain market capitalization, sales and profit milestones. The milestones sounded very ambitious in 2018, but they were all achieved over time. Tesla's market value was $60 billion when the pay package was decided, and in the years that followed it rose to more than a trillion dollars at times. Today it is around 600 billion dollars, making Tesla still by far the most valuable car manufacturer in the world.
The shareholder lawsuit was heard in court in autumn 2022, and Musk also testified personally. The responsible judge, Kathaleen McCormick, took a lot of time to make her decision after the trial. The judgment she has now announced is 201 pages long and calls Musk's salary package “historically unprecedented” and “unfair.” The process that led to the approval of the package was “deeply flawed.”
The judge pointed to Musk's close ties to the members of the board of directors who were responsible for negotiating his compensation. Musk exercised the “maximum influence” that a manager could have over a company, and the board never questioned whether such lavish pay was necessary to keep him. The judge speculated that the panel was “perhaps blinded by Musk’s superstar appeal.”
A large part of Musk's wealth comes from Tesla shares
Musk initially left it open on Tuesday whether he wanted to take action against the ruling. On the online platform
A large part of Musk's wealth comes from his Tesla shares; his share was recently around 13 percent. Musk sold larger packages of Tesla shares before taking over the Twitter platform – now known as X – for $44 billion in the fall of 2022.
Just a few days ago, Musk made people sit up and take notice with his demand for another generous salary package. He threatened to develop products elsewhere in the future if he did not hold at least 25 percent of the voting rights. He said it wasn't about the money for him. He wants to ensure that he has enough influence so that he cannot be so easily disempowered by institutional investors with “strange ideas”.
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