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Judge in Delaware “Not Standing” With Elon Musk: Invalidates His Compensation Package

Elon-musk-paycut

The individuals in America with whom “we stand with” have effectively persuaded Americans of their unworthiness for a dividend. Notably, Elon Musk and Jeff Bezos, as heads of publicly traded companies, have seen hardworking Americans and many others with their pension funds invest without receiving any dividend, while these CEOs gain immense benefits. Despite this, the narrative persists that we must “stand with” certain reference groups unconditionally. Contrarily, it would seem that a Delaware judge is choosing not to “stand with” Elon Musk. Here’s a quick rundown of the facts:

  • The Delaware judge invalidated Tesla CEO Elon Musk’s $56 billion compensation package, ruling it unfair and not justifiably executed by the board.
  • The decision followed a lawsuit by Tesla shareholder Richard Tornetta, leading to a 3% drop in Tesla’s share price in after-hours trading.
  • Judge Kathaleen McCormick found that the compensation process was deeply flawed, with Musk having significant influence over the board members involved.
  • The ruling raises critical issues about executive compensation and corporate governance, particularly in the context of companies not providing dividends to shareholders.

The full story:

In a groundbreaking decision, a Delaware judge nullified Tesla CEO Elon Musk’s staggering $56 billion compensation package, citing its unfairness and lack of justification. The court’s decision, announced on Tuesday, came in response to a lawsuit filed by Tesla shareholder Richard Tornetta in the Delaware Chancery Court, leading to a 3% drop in Tesla’s share price in after-hours trading.

The 2018 compensation plan for Musk, deemed the most extensive in public corporate history, catapulted him to the status of a centi-billionaire and the world’s richest individual. This plan hinged on Musk securing 12 tranches of stock options contingent upon Tesla reaching specific market capitalization and revenue milestones.

Judge Kathaleen McCormick, presiding over the case, posed a critical question in her 200-page verdict: “Was the richest person in the world overpaid?” She stated that the shareholder plaintiff accused Tesla’s directors of breaching their fiduciary duties by endorsing this performance-based equity-compensation plan for Musk.

In her ruling, Judge McCormick determined that Musk exerted control over Tesla and that the process approving his pay was significantly flawed. She highlighted Musk’s connections with the negotiating parties on Tesla’s behalf, including management members who were under his influence. This included General Counsel Todd Maron, previously Musk’s divorce attorney.

Describing the approval process as Musk’s “self-driving process,” Judge McCormick concluded that it led to an unfair compensation price, stating, “The plaintiff is entitled to rescission.”

She further instructed both parties to confer on a final order to conclude this matter at the trial level, including addressing fees.

In light of this decision, Musk, his lawyer, and Tornetta’s attorney have been approached for comments, as reported by CNBC. Musk, in a late Tuesday tweet, advised against incorporating companies in Delaware. How classic is that?

The judgment rested on the finding that Musk, with a 21.9% equity stake and influential corporate positions, controlled Tesla, especially concerning his compensation. The court also found that Tesla and Musk’s attorneys couldn’t prove that the stockholder vote on this matter was fully informed, as the proxy statement inaccurately portrayed key directors as independent and omitted crucial details about the process.

Amidst this controversy, Musk recently aimed to increase his voting control over Tesla to 25%, emphasizing his discomfort in growing Tesla’s AI and robotics sectors without significant voting influence.

This ruling raises critical questions about executive compensation, especially in a scenario where Tesla’s investors receive no dividends. It highlights the dilemma of justifying such a massive pay package in a company where shareholder returns are seemingly overlooked. The case underscores a growing concern over corporate governance and the balance of power between executives, boards, and shareholders in modern corporations. More than anything: it could be a sign that America will no longer simply “stand with” people at the cost of our own financial welfare.

In American finance, the plight of zero dividend investments emerges as a particularly disheartening thread. For many investors, particularly those reliant on steady returns for retirement or other long-term goals, the absence of dividends in their portfolios represents not just missed opportunity, but a tangible setback. This issue is exacerbated during periods of declining stock prices. When the market falters, those who have banked on capital gains find their financial security eroding rapidly, lacking the cushion that dividend payouts might provide. Unlike steady dividend income, which can offer a semblance of stability even in turbulent times, non-dividend stocks leave investors fully at the mercy of market whims. In such scenarios, the value of their investments can diminish significantly, leaving them with little to show for their risks and contributions, and potentially impacting their financial well-being severely.

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