Court deprives Elon Musk of $56 billion

January 31, 2024  16:06

The US court invalidated the rights of Elon Musk, by which he, as the CEO of Tesla and the owner of a large block of shares in the company, was entitled to receive 56 billion dollars in compensation from Tesla. Against the background of this news, the price of the company's shares decreased by 3%.

The corresponding stock compensation package was assigned to him back in 2018 and became a record-setting one among all public companies. The court of Delaware announced this week the verdict on the annulment of this agreement between Tesla's board of directors and Elon Musk, after considering the lawsuit filed by one of Tesla's shareholders, Richard Tornetta, who previously disagreed with the size of compensation for Elon Musk's work in that position.

The parties involved in the dispute still need to determine the conditions under which Musk will have to return the previously received stocks and funds as payment for his work as the CEO of Tesla. The defendant retains the option to challenge this decision in a higher court.

As determined by the court, it was the $56 billion compensation package that helped Elon Musk become the richest person in the world. According to the existing plan, Musk could receive Tesla shares in portions of 12 tranches starting from 2018 if the company's financial performance reached certain target values. The realization of the shares in the market at current prices allowed Musk to earn substantial sums of money.

In the court's opinion, Tesla's CEO managed to align the actual performance with the required magnitude, and therefore, his resulting enrichment is deemed unjust. The plaintiff believes that the board of directors went along with Musk, appointing him such a generous compensation package. People in the board of directors had strong connections with Musk, and therefore, the decision on compensation was made in the interests of the billionaire under subjective conditions.

According to representatives of American legal authorities, neither Tesla's board of directors nor the committee on compensation appointments acted in the interests of the company and its shareholders at that stage. There is not even clear evidence of the actual negotiation process on this issue.

Elon Musk, at the time of preparing this material, limited himself to a call from his X social network page, "never to register companies in the jurisdiction of Delaware." He also initiated a sociological poll suggesting re-registering Tesla in the state of Texas, where its headquarters is located after moving from California. By the way, that move was initiated by Elon Musk not only because of the conflict with the authorities of California due to the lockdown of the company's local plant in the first weeks of the 2020 pandemic but also for tax savings.

In 2018, Elon Musk owned 21.9% of Tesla's shares; now his stake has decreased to 13%. However, not long ago, he began to promote the idea of increasing it to 25% for more effective management of the business. In such a position, he could remain sufficiently influential, while shareholders would still have the opportunity to block his most controversial decisions if necessary, as explained by the company's CEO himself.

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