Tesla's board is expected to secure Chief Executive Elon Musk his substantial pay package "one way or another," despite a recent ruling from a Delaware judge unfavorable to the plan, said Wedbush Securities. The electric vehicle maker's shareholders initially approved Musk's compensation deal back in 2018, yet a ruling from Chancellor Kathaleen McCormick of the Delaware Court of Chancery in January invalidated the plan, deeming it an "unfathomable sum." In a subsequent vote in June, shareholders again affirmed the payout package worth approximately $56 billion at that time. However, McCormick once more blocked the compensation package on Monday.
"Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable," she stated in court documents. Tesla's arguments presented several significant issues that undermined its request to amend the court's ruling.
"Taken together, they pack a powerful punch," McCormick added. On Tuesday, Tesla's shares experienced a decline of 2.2% in late-afternoon trading, yet they have risen 41% year to date. Musk commented on social media platform X that "shareholders should control company votes, not judges." In a separate statement, Tesla declared the court's ruling as "wrong" and announced plans to appeal.
The company asserted that "this ruling, if not overturned, means that judges and plaintiffs' lawyers run Delaware companies rather than their rightful owners -- the shareholders." Wedbush analysts, including Daniel Ives, characterized the ongoing Delaware court battle as a "soap opera," expressing confidence that Tesla would ultimately prevail at the Supreme Court level since shareholders had overwhelmingly approved the pay package on two occasions.
"One way or another, the board is getting Musk his pay package and another long-term one for the next decade to secure Musk will be CEO of Tesla at least through 2030," they noted. Following McCormick's initial block of the pay package, Tesla opted to relocate its corporate headquarters from Delaware to Texas.
Ives indicated that this legal battle could act as a catalyst for more public companies to consider moving away from Delaware for their corporate status, given the striking legal precedents established in this case, which pose risks against shareholder votes in a troubling manner..