Editor’s note: This story has been updated with a quote from Elon Musk and further information from the judge’s opinion, and the headline has been updated.
A shareholder challenge to a $55-billion pay package for Tesla Inc TSLA CEO Elon Musk succeeded Tuesday.
Judge Rules On Musk’s Pay: Billionaire and world's richest person Musk could be worth less in the future after a Delaware judge voided a $55-billion compensation plan for the Tesla leader.
The decision comes five years after Musk was granted one of the largest compensation plans for an executive in history, according to Bloomberg. The package was challenged by a shareholder who said there were not proper disclosures to investors before the compensation package was approved.
Tesla's board will now have to work on a new proposed compensation plan for the CEO.
Chancery Court Chief Judge Kathaleen McCormick sided with the plaintiff in the case, Richard Tornetta.
"The posttrial decision enters judgment for the plaintiff, finding that the compensation plan is subject to review under the entire fairness standard, the defendants bore the burden of proving that the compensation plan was fair, and they failed to meet the burden," McCormick said
Musk’s 2018 compensation plan was 250 times larger than the "contemporaneous median peer compensation plan" and over 33 times larger than the next closest comparison, which was Musk’s prior compensation plan, the judge said.
McCormick laid out details on the Tesla board that approved the compensation plan being controlled by Musk, which she said means it was not truly independent. Shareholders were unaware of the potential conflicts of interest between Musk and the board, she said.
The more than 200-page ruling, which starts with the words "was the richest person in the world overpaid?" is unlikely to please fans of Tesla and Musk.
Tesla can appeal the decision or come up with a different compensation plan. The battle could be far from over.
Musk took to his platform X, formerly Twitter, to share his frustration after the ruling and said:
“Never incorporate your company in the state of Delaware.”
Related Link: Tesla Q4 Earnings Highlights: Revenue Miss, EPS Miss, Model Y A Global Bestseller, Next-Gen Vehicle Update And More
Musk’s Wealth Crown In Jeopardy: The judge's ruling could impact the title of the world's richest person.
Currently valued at $204 billion by Bloomberg, Musk is the richest person in the world, with Jeff Bezos in second place at $186 billion.
Bloomberg reports the options that were part of Musk’s compensation package are valued at over $50 billion. Without the options, Musk would see his net worth fall to $154.3 billion. This would rank Musk in third place for the world's richest person, trailing Bezos and Bernard Arnault ($183 billion).
The decision comes as Musk has said he wants a larger ownership stake of around 25% of Tesla.
TSLA Price Action: Tesla shares are down 2% to $187.30 in after-hours trading Tuesday versus a 52-week trading range of $152.37 to $299.29.
Photo via Shutterstock.
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