MONTH-IN-BRIEF (Feb 2024)
Business Litigation
Delaware Court of Chancery Holds Musk’s $55.8 Billion Tesla Compensation Plan Is Not Entirely Fair, Orders Rescission
By K. Tyler O’Connell, Morris James LLP
Tornetta v. Musk, C.A. No. 2018-0408-KSJM, 2024 WL 343699 (Del. Ch. Jan. 30, 2024).
In both 2009 and 2012, Tesla, Inc. and its founder and Chief Executive Officer Elon Musk agreed to compensation plans with significant stock option grants that would vest in tranches if Tesla achieved certain operational and financial milestones. Although the 2012 grant had a ten-year term, by 2017, Tesla already was nearing completion of those milestones. Tesla’s board of directors and its stockholders other than Musk then approved a new compensation plan with up to $55.8 billion in total value. As the Delaware Court of Chancery described, this was the largest compensation plan the parties could identify “in the history of public markets.” In this post-trial decision, the Court examined Tesla’s decision to adopt the compensation plan and held that Musk and the other defendants failed to prove that decision was entirely fair to Tesla.