A Delaware judge has once again struck down a compensation plan for Tesla Inc. CEO Elon Musk, the second time the plan has been rejected. This decision comes six months after Tesla shareholders approved the $56 billion pay package for the second time.
The Timeline of Rejection
In January, Delaware Chancery Court Judge Kathaleen McCormick ruled that the pay package would be voided due to Tesla’s board being influenced by Musk when they adopted the plan. Despite this, Tesla shareholders voted again to reinstate the package in June. However, Judge McCormick again ruled against the package on Monday.
Response from Tesla
Tesla has deemed the ruling to be wrong and intends to appeal to the Delaware Supreme Court. The company claims that the judge overruled a supermajority of shareholders. However, appealing this decision could typically take around a year.
What’s Next for Elon Musk’s Pay Plan
Tesla board chair Robyn Denholm has stated that there are multiple possibilities if the package gets rejected. The board considered creating a new pay plan, but this could result in higher costs for shareholders or decreased motivation for the company CEO.
Creating a new pay plan could cost shareholders an additional $25 billion in the form of stock-based compensation. Musk was awarded stock options if the company hit certain performance and financial targets under the 2018 pay package. Given the stock’s recent rally, the package is now worth over $100 billion.
Implications and Future Possibilities
Both formulating a new pay package and offering Musk the old one could be costly for Tesla. A settlement is possible in the lawsuit, but it is unlikely given Musk’s previous track record of taking cases to trial. As the situation unfolds, shareholders and investors will be closely watching the developments in this high-stakes battle.
Background on the Pay Package
The 2018 pay package awarded Musk stock options if the company hit certain performance and financial targets. Musk cleared all targets, giving the award a hefty value. The original value of the package was up to $56 billion, but it has significantly increased due to the stock’s recent rally.