Delaware judge denies Elonˋs huge pay package again despite the Tesla shareholders approving it again and Elon moving the HQ out of Delaware
Elon is stamping his feet in Twitter
Well, 84% of voters (not incl. Musk and his brother) voted in favor of the package, but the judge denied it as it “is against shareholders best interest”. When a judge knows better than shareholders what’s best for them I’m questioning the impartiality of the judge.
Interestingly, since his package was approved in the summer (and rejected by the same judge back then) the value of the Tesla stock has doubled.
Here is the Judges’ views:
A shareholder vote on the payment passed by 75% in June, but the judge did not agree the pay should be so large despite what she called Tesla’s lawyers’ “creative” arguments.
“Even if a stockholder vote could have a ratifying effect, it could not do so here," she wrote in her opinion.
The judge also ruled the Tesla shareholder who brought the case against Tesla and Mr Musk should receive $345m in fees but not the $5.6bn in Tesla shares they asked for.
Some observers said a ruling in favour of Mr Musk and Tesla would have dealt a blow to conflict of interest laws in Delaware.
"The idea of conflict rules is to protect all investors" not just minority investors, said Charles Elson of the University of Delaware’s Weinberg Center for Corporate Governance.
Mr Elson said Judge McCormick’s opinion was well-reasoned.
“You had a board that wasn’t independent, a process that was dominated by the chief executive, and a package that was way out of any sort of reasonable bounds,” he said. “It’s quite a combo.”
Mr Elson said he expects Tesla might try to reconstitute a similar pay package in Texas where the company moved its legal base earlier this year after the pay ruling.
From the BBC (emphasis added)
84% of the shareholders (excl Musk and his brother) voted on favor. That’s not exactly minority. In fact, a minority shareholder brought the challenge
From the BBC it was 75%, not 84%.
Musk’s attorneys attempted to reverse McCormick’s January decision after the 2018 pay package was re-approved by 84% of shares not held by Musk or his brother, Kimbal Musk, in June
In any case, neither 75%, nor 84% is a minority vote.
We are talking about two votes, the later the lower percentage perhaps ?
No, one vote, in June. One figure includes Musks and his brothers shares and the other one doesn’t. In any case, both figures are high enough to be na overwhelming majority and no where near a “minority vote”.
Sometimes people need to be protected from themselves, anyway Elon is already the richest man in the world so we shouldn’t cry for him
Couldn’t care less about the bank account of Elon, I was commenting on the rather paternalistic and borderline communist decision by the judge. The fact that this is Musk being the “victim” shouldnt cloud our judgement to say things as they are. This is no business for a judge to decide on.
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Maybe the Elon / brother votes are similar to “super-votes” in Tesla like the Murdoch family has (14% stake in News Corp but 41% voting power)?
(Not looked it up, just a thought).
I couldn’t sleep last night and so started reading the judgment, until part way through when I realised it was over 100 pages long.
Long story short, the decision was already made and a vote done after the judgement can’t be used to change the judgement (it is evidence created after the original court case, not evidence that existed before).
Plus the whole way what the Tesla board danced to Musk’s tune in getting the vote and appeal etc. done doesn’t really point to an independent board.
They should maybe stop trying to fix the past mess they created and instead set up a new compensation package. And frankly, anyone doing their job properly wouldn’t pay Musk anywhere near the amount of the old package.
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In last disclosure (30.09.2024), 46% of Tesla equity was held by institutions.
If I remember well, the top institutional investor (Vanguard Group) voted YES. But, that doesn’t ensure all other institutions agree with the YES. It’s a long list, even the Swiss National Bank holds ~3 billion USD.
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And here I am, stuck on how fugly must his brother be?
I suggest you stop your sexist hate.
The entire discussion, based on a ex-post valuation, is nonsense. How much the compensation is worth today or at the time of the first ruling is completely irrelevant as that’s based on hindsight. Anybody with that advantage would be a gazillionaire in a very short time.
The only relevant measure ist the package’s value at the time it was granted in 2018. It was worth $2.3billion, no salary or cash payment, stock options only.
Here’s the proxy statement filing.
By my calculation the vote this June was 71.8% in favor, counting only the non-Musk Yes and Nos (1761 Yes vs 529 No, in millions).
Here’s the SEC filing on it, see Proposal 4.
And frankly, the milestones were insane. For those who bother to check, Tesla in FY 2017 had $11.8bln revenue, EBITDA -98mln (a loss), and $59bln market cap on January 21, 2018, the date of the grant. The first milestone, worth 1/12 of the package or just shy of $200mln, was $100bln market cap plus $20bln revenue and $1.5bln EBITDA (adjusted). The last milestone required $650bln market cap, an 1100% increase.
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I think its more nuanced than this. It’s definitely not in the job description of a judge to decide what is excessive pay. Is there a law that specified criteria and bands of pay? Second, whether the board danced in tune with Elon is irrelevant to the overwhelming majority of shareholders who voted for the pay package. Last, but not least, there has been quite a list of KPIs that Musk had to reach in order to trigger the payout, which apparently he did. Institutional investors like Vanguard are nobody’s fool.
Don’t get me wrong, I also believe this is excessive pay and I couldn’t care less about Elons financial situation. However, I don’t believe that it’s a judges job to make these decisions. If it was, then we don’t need a board or shareholders voting.
You seem to be confused, judges administer the laws - they do not make them.
The key point here is Elon failed to prove this pay award was fair under Delaware law.
The judge wrote “In January 2024, the court issued a post-trial opinion finding that the award was subject to review under the entire fairness standard, the defendants bore the burden of proving entire fairness, they failed to meet their burden.”
The judge also dealt with the point about the majority stockholder vote as not relevant under Delaware law.
The judge wrote; In Defendants’ words, “stockholders hold the power to adopt any corporate acts they deem in their own best interests.
”The flaw with this thesis is that “directors and officers are not agents of the stockholders, nor are the stockholders their principals.
“Rather than treating directors as agents of the stockholders, Delaware law has long treated directors as analogous to trustees for stockholders.
In summary when setting up a company in a jurisdiction then one needs to make damn sure you understand the laws.
The judge made it clear that Elon’s lawyers put up some ingenious arguments but they were irrelevant under Delaware law.
You can read the ruling here; https://courts.delaware.gov/Opinions/Download.aspx?id=372420
Edit; What is this fairness standard
Entire fairness is Delaware’s most exacting standard of judicial review for corporate transactions and generally requires the defendants to prove that the challenged transaction was entirely fair to the corporation—i.e., that it was the product of a fair process and resulted in a fair price
Which is what I am surprised about as if majority stockholder vote is irrelevant then a judge can start making decisions about things which are not in the judges prerogative. Just as I believe that its not a judges job to decide on excessive pay. And yes, this is about excessive pay, read what the judge said about not granting the full amount requested by the minority shareholder.
In any case, I am not a lawyer, so was just sharing my disbelief in the decision.
Maybe to outsiders, IIRC, during discovery, they found internal documents which showed that based on forceasts, many of the tranches were likely to vest quickly and 11 milestones were forecast to be hit in 3 years. Publicly they made it sound difficult, but hid these forecasts from the shareholders.
A few big shareholders did object to the pay package. This ruling protects them.