A judge in Delaware has ruled against Elon Musk’s compensation package from Tesla. Prior to Tesla’s large expansion, Musk had created a compensation package in the event that the company reached high enough profitability.
The judge described the package as too high and unreasonable for the company, despite the board of directors approving it. The lawsuit came from a small Tesla shareholder opposed to the deal. The NY Times reports:
A Delaware judge’s decision to void the pay package that helped make Elon Musk the world’s richest person leaves Tesla’s board of directors with some difficult decisions to make.
Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery on Tuesday ordered Tesla to cancel stock options awarded to Mr. Musk, the electric car company’s chief executive, worth about $50 billion. Now the company’s directors must figure out a new compensation plan that can pass legal muster and satisfy Mr. Musk, who recently demanded that the board substantially increase his ownership of Tesla.
In response, Musk is thinking of incorporation his company in Texas, where the current physical headquarters are located. An X poll, a platform owned by Musk, backed his decision. Based on past Musk polls, he will most likely follow through with the idea. Ars Technica says:
Musk had posted a poll on X (formerly Twitter) asking whether Tesla should “change its state of incorporation to Texas, home of its physical headquarters.” After over 87 percent of people voted yes, Musk wrote, “The public vote is unequivocally in favor of Texas! Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas.”
Tesla was incorporated in 2003 before Musk joined the company. Its founders chose Delaware, a common destination because of the state’s low corporate taxes and business-friendly legal framework. The Delaware government says that over 68 percent of Fortune 500 companies are registered in the state, and 79 percent of US-based initial public offerings in 2022 were registered in Delaware.
Delaware is often used as a state to incorporate due to its business friendly rulings. Musk could begin a shift away from the state, but another possibility is that the ruling was politically motivated. Musk has declared himself against Joe Biden, whose influence in Delaware is very strong.
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