A judge in Delaware cancelled a $55. 8 billion pay deal given to Elon Musk by Tesla in 2018.
A person who owns part of the company said they paid too much and is taking it to court.
Judge Kathaleen McCormick said the payment was a very large amount that was not fair to the owners of the company. She also said the way the payment was approved had many problems.
She decided that the contract must be cancelled.
The agreement on how much money to pay was made in 2018 and was the largest ever in US corporate history. This helped Mr. Musk become the richest person in the world. In November 2023, Bloomberg and Forbes said his money is between $198 billion and $220 billion.
Tesla’s deal connected Mr. Musk’s pay to how well Tesla’s stock does and how much money the company makes. He doesn’t get paid.
But the owner of some of the Tesla company, Richard Tornetta, sued to take back the award because he thinks the boss got too much money.
After many years of fighting in court, a trial started in November 2022. Tesla directors were trying to explain that the big payment to Mr. Musk was meant to make sure he keeps focusing on the company. Musk is known as one of the most active and successful entrepreneurs in the world.
However, in her 201-page decision published on Tuesday, Judge McCormick stated that the Tesla directors had been influenced by the excitement about Mr. Musk’s celebrity status.
Furthermore, Musk had a close connection with the Tesla officials who were responsible for discussing the pay award. She mentioned his long relationship with the person in charge of deciding how much people get paid.
Mr Musk has been doing business with Antonio Gracia for over 20 years, said the judge.
After the decision was made, Greg Varallo, a lawyer for the Tesla shareholder Mr. Tornetta, said it was a “good day for the good guys,” in an email reported by Reuters.
Mr Musk posted on X (formerly known as Twitter) saying “Don’t register your company in Delaware”.
“I suggest setting up a business in Nevada or Texas if you want the shareholders to make decisions,” he said. He asked his followers if Tesla should move its legal headquarters to Texas, where its main office is located.
The judge’s decision can be challenged in the Delaware Supreme Court.
Tesla’s stock went down by about 2. 5% in after-hours trading in New York. They are worth 20% less this year than they were before.
Mr Musk is the boss and a big owner of Tesla. He also has other companies like X, SpaceX, and Neuralink.
Mr Musk sold a lot of his Tesla shares to buy X. Now he owns about 13% of the company. He wants to own even more.
When Tesla offered Mr. Musk a pay package in 2018, a lot of people noticed and talked about it. Many shareholders’ advisors suggested not to vote for the plan because they believe it is too generous.
The package was much larger than the salaries of the top 200 CEOs in America combined in 2021, according to research firm Equilar.
Brian Quinn, a teacher at Boston College Law School, told the BBC that it was difficult to say that a deal like this is right, because Mr. Musk has a lot of power over the board.
“He takes care of Tesla as if it’s his own, but he’s not the main owner even though he calls himself the ‘Techno-king of Tesla’,” Professor Quinn explained.
Mr Musk is worried about Tesla’s investments in artificial intelligence technology.
“I don’t feel good about making Tesla a leader in AI and robotics unless I have 25% of the voting power,” he said on social media.
He said the way Tesla’s shareholders are now can make it easy for someone not trustworthy to take over the company, and he wants more say in where it’s heading.
Mr Musk said he would rather make products somewhere else if that’s not true.