Today on Bite-Sized Business Law, we discuss the very bad day that Elon Musk had recently as a result of the Delaware Court of Chancery opinion that started with a simple question: “Was the richest person in the world overpaid?” This is the first time that a court of law has overturned a board’s decision on compensation. Here to walk us through exactly what happened (and why) is the esteemed Richard Squire, Professor Of Law at Fordham Law School. Join us as we unpack some of the important considerations raised for boards and independent directors when deciding upon significant compensation awards, why Tesla’s directors maintained a somewhat cavalier attitude concerning the formalities the courts require in these circumstances, and how the sheer size of the grant ultimately influenced the outcome of the decision. We also touch on the precedent that this ruling sets and how it could lead to similar suits against other outrageous CEO pay packages. Be sure to tune in for a fresh take on this “intergalactic corporate conflict!”
Key Points From This Episode:
• The story behind the Tesla compensation package that would have paid Musk $55+ billion.
• Whether or not Musk achieved the benchmarks necessary for payout.
• Reasons shareholders sued him over the payout.
• How Tesla’s stock price has responded to the ruling.
• An overview of the plaintiff’s main argument in this case.
• Why the stockholder vote approving Musk’s grant was deemed “not fully informed.”
• What the Delaware safe harbor provisions are and how they might have been achieved here.
• Important considerations for boards and independent directors when deciding on significant compensation awards like this.
• When it becomes necessary for the courts to step in.
• Grounds for appeal and how this decision will impact corporate negotiation strategies.
• How the eye-watering size of the grant factored into the Delaware court’s decision.
• Ways that this case lays the blueprint for companies to safeguard executive pay.
• Why Musk is mad at Delaware and how he could influence business investment there.
• Insight into the appeal of the Delaware Chancery Court ruling.
• Some of the questions we’d like to see addressed if the case is appealed.
Links Mentioned in Today’s Episode: