Yesterday, Delaware Chancery Court Chancellor Kathaleen McCormick dealt a major blow to Tesla (NASDAQ:TSLA) CEO Elon Musk after she ruled to void his performance-based $56 billion compensation plan established in 2018.
The plan, which was the largest compensation plan ever, sought to provide Musk with TSLA stock options in 12 tranches. The first tranche would be rewarded once Tesla reached a market capitalization of $100 billion, the second at $150 billion, the third at $200 billion and so on up until $650 billion. Tesla had a market capitalization of about $60 billion when the plan was announced.
McCormick stated that Musk had an unfair influence over Tesla’s Board of Directors and compensation committee which resulted in the plan being approved.
“In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan,” wrote McCormick.
TSLA Stock: Musk Plans to Change Tesla’s State of Incorporation to Texas
After the ruling was announced, Musk posted the following poll on X (formerly Twitter):
After a majority of the voters voted in favor, Musk posted that he would hold a shareholder vote to move Tesla’s state of incorporation to Texas.
According to Columbia Law School professor Eric Talley, Texas is more likely than Delaware to allow large payments to CEOs without liability. Texas could also allow Tesla’s board to provide Musk with a “gratitude” bonus without having to deal with Delaware’s “fiduciary standards.” At the same time, other legal experts stated that shareholders would likely sue Musk if the only reason he wanted to move to Texas was to receive his compensation package. Reuters notes that Delaware also allows companies to raise capital at lower costs when compared to most other states.
Meanwhile, Musk already has a presence in Texas. The CEO moved the company’s corporate headquarters to Austin, Texas in 2021 and is planning a $750 million expansion of one of its gigafactories in the state.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
