Tesla (NASDAQ: TSLA) shares fell over 2% on Wednesday following a U.S. court ruling to reject founder and CEO Elon Musk’s $56 billion compensation package.
In a recent ruling, a judge from Delaware invalidated a compensation package worth $56 billion for Elon Musk. The decision was in favor of the plaintiffs, who contended that the board of Tesla had not acted appropriately when they established the pay deal.
The issue at hand was not the unparalleled magnitude of the 2018 compensation plan but rather the inadequate disclosures and conflicts of interest by Tesla’s board, which has historically demonstrated limited independence from Musk.
“Musk initiated an autonomous procedure, adjusting the velocity and trajectory as he deemed appropriate,” penned Chief Judge Kathaleen McCormick of the Delaware Chancery Court in her verdict. “The procedure culminated in an inequitable cost. And via this lawsuit, the plaintiff is seeking a reversal.”
On one side, the annulment of the compensation plan lessens the potential dilution for shareholders. Consequently, one could argue that this news could be perceived as a positive development for TSLA stock.
The board of Tesla could formulate a fresh compensation plan for Musk in a relatively brief period.
Meanwhile, Musk has recently advocated for a substantial elevation in voting power to 25%, beyond the now-annulled compensation plan. He warned of transferring AI and robotics technology from Tesla to a different entity if he is not granted this increased control.
After the ruling, Musk shared a post on X,
“Never incorporate your company in the state of Delaware.”
Judge McCormick presided over the Musk vs. Twitter case, which ended with the billionaire acquiring the social network for $44 billion.
Tesla (NASDAQ: TSLA) Stock Reaction
TSLA stock declined -2.24% on Wednesday. The traders had exchanged hands with 102,783,463 (102.78 million) shares compared to the average daily trading volume of 117.85 million.
