Elon Musk may lose his title as the world’s richest person after a US judge ordered him to refund a company dividend of roughly $56 billion.
On Tuesday, a Delaware court determined that the SpaceX and Neuralink CEO could not keep his hefty salary package from Tesla, the electric car firm he has overseen since 2008.
The verdict was a triumph for Tesla shareholders who accused Musk of pushing his own pay terms to board members who were not truly independent.
If executed, the court’s judgment would reduce Musk’s estimated $200 billion fortune, placing him below Amazon founder Jeff Bezos and French fashion mogul Bernard Arnault in the list of the world’s wealthiest individuals.
“Put simply, neither the pay committee nor the board acted in the best interests of the company while negotiating Musk’s remuneration package. In fact, there is little indication of negotiations at all,” wrote Judge Kathaleen McCormick.
She described Musk as a “superstar CEO” who leveraged his control over the company and tight ties with many board members to produce a “deeply flawed” approval procedure that resulted in a “unfair price”.
In response, Mr Musk said, “Never incorporate your company in the state of Delaware.”
Tesla shares fell by much to 4% in after-hours trading on Tuesday evening.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
Before a firm’s shares to be traded on the open market, the majority of its board of directors must be independent of the company, according to both the New York Stock Exchange and the Nasdaq.
During the trial, Tesla’s lawyers contended that the massive pay package, approved in 2018 by the board and later by shareholders, was required to keep one of the world’s leading engineers focused on the company.
Tesla faced “production hell” and struggled to meet demand for its Model 3 vehicle. Mr Musk’s arrangement gave him an additional 1% of the company’s shares for each commercial milestone he achieved.
According to Ms McCormick, this was “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude”.
Since then, the business has surpassed all 12 benchmarks and become one of the world’s most valuable enterprises, propelling Mr Musk from the mid-twenties of Forbes’ rich list to the top.
Tesla’s shares peaked at about 14 times their worth in early 2020 and are still more than five times that level today, despite a challenging year for the firm.
Antonia Gracias, who served on Tesla’s board from 2007 to 2021, testified in court that it was “a great deal for shareholders” since it helped the firm reach new heights of prosperity.
However, in her decision, McCormick argued that Mr Musk was already highly motivated to operate the company well because he owned 22% of its shares.
“Swept up by the rhetoric of ‘all upside,’ or perhaps starry-eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” She wrote.
She claimed that Mr Musk had “extensive ties” with those who negotiated his compensation and had made the entire firm “highly dependent” on him, citing his 2021 title change from “CEO” to “Technoking”.
She also claimed that shareholders were not properly informed when they voted for the transaction since the company’s statement about it disguised key directors’ ties to Mr Musk.
According to Ms McCormick, Mr Musk described an early version of the transaction as “me negotiating against myself” at one point.