A US judge has delivered a seismic blow to Elon Musk, voiding the Tesla chief executive's monumental $56bn (£44bn) compensation package in a landmark ruling.
The decision from the Delaware Chancery Court comes after a shareholder lawsuit challenged the 2018 pay deal, which was the largest in corporate history. Chancellor Kathaleen McCormick declared the sum "unfathomable" and found the board's process for securing its approval was "deeply flawed".
The ruling states that the negotiation process was dominated by Musk himself, with the board failing to demonstrate "that the compensation plan was fair". The package was contingent on Tesla achieving extraordinary market valuation and operational milestones.
This legal defeat for the world's richest man centres on claims that the Tesla board lacked independence and failed to adequately inform shareholders before they voted on the package. The court found that the board, which included close allies and Musk's brother, did not act in the best interests of the company.
The lawsuit was brought by Richard Tornetta, a Tesla shareholder who argued the package was excessive and the approval process was unfair. The court's decision now throws Musk's compensation structure into disarray and could force Tesla to devise a new, more transparent pay plan.
Legal experts are hailing this as a watershed moment for corporate governance, potentially setting a precedent for executive pay packages across the United States. The ruling emphasises that even in a company with a dominant visionary like Musk, boards must uphold their fiduciary duties and ensure fair dealing.
Tesla and Musk's legal team are expected to appeal the decision to the Delaware Supreme Court, setting the stage for a prolonged legal battle over the largest pay package ever awarded.
