Billionaire and advisor to President-elect Donald Trump Elon Musk was denied by a judge this week a $56 billion compensation package for his work as CEO of Tesla, the successful electric automaker that pioneered EV technology in the U.S. The package had been approved by more than 70% of Tesla’s board of directors.
A Tesla shareholder who owned just nine shares of stock in the company sued to block the 2018 compensation agreement. In addition to blocking the package this week, the judge in the case, Delaware Chancellor Kathaleen McCormick, awarded the plaintiff’s attorneys $345 million, which Reuters reported is “one of the largest fee awards ever in securities litigation.”
The Associated Press reported that “the fee award amounts to almost exactly half the current record $688 million in legal fees awarded in 2008 in litigation stemming from the collapse of Enron.”
The ruling was widely criticized as government overreach into the private sector.
Cathie Wood, founder and CEO of ARKinvest, called the ruling a “mockery.”
“Adding judicial insult to injury, Delaware Judge McCormick has ordered #Tesla shareholders to pay the plaintiff’s lawyers $345 million! The plaintiff owned 9 shares of $TSLA,” Wood wrote on X. “McCormick is making a mockery of the sense of fairness essential to our American judicial system.”
Pershing Square CEO Bill Ackman wrote: “This decision and the payola for lawyers is absurd. We are going to see a migration of Corporate America from Delaware.”
The unique compensation package was high risk, high reward. If Musk hit all of his target goals to make the company hugely successful, as he did, then he would be awarded the compensation package. If he did not hit those marks, he would receive zero dollars.
Musk and Tesla vowed to appeal.
McCormick first voided the pay agreement in January, saying it was unfair and that the Tesla board did not negotiate well enough with Musk.
In response, a supermajority of more than 70% of Tesla shareholders voted to approve the payment package for Musk earlier this year, but again McCormick sided this week against Musk and Tesla shareholders.
Musk called the ruling a form of “lawfare.”
“Shareholders should control company votes, not judges,” Musk wrote on X.
Many other Tesla shareholders blasted the decision and the attorney fee decision.
“The lawyers, judges, and attorneys did not create net-positive shareholder value from this clownery,” Alex Guichet, who said he is a Tesla employee, wrote on X. “They do not deserve a single dollar. We employees did. We supported the shareholder vote with our own yes votes too. This is wrong on so many levels.”
Shareholder Jeremy Goldman wrote: “The majority of the owners of the company have made their desires known and it’s just crazy that a single judge can basically say haha, no. I don’t really care what you want. Also pay a few hundred million for the privilege of being ignored.”
The plaintiff’s attorneys praised the ruling.
“We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into Court proceedings and thank the Chancellor and her staff for their extraordinary hard work in overseeing this complex case,” attorneys from Bernstein, Litowitz, Berger & Grossmann, the firm representing Musk’s opponents, said in a statement.
A November 2024 study published by the U.S. Chamber of Commerce Institute for Legal Reform found tort costs amounted to $529 billion in 2022, or 2.1 percent of U.S. GDP. The study found that excessive tort costs hurt the economy.
“In addition to having a substantial aggregate cost on the economy, a large portion of the total tort-related expenditures go toward litigating and defending claims and lawsuits rather than compensating claimants,” authors of the study wrote.
