CEO Elon Musk won’t be a pauper because a Delaware chancery court on Monday overturned his Tesla pay package—worth some $100 billion at the company’s current stock price. But the decision still sets a bad legal precedent that will damage American corporate law.
Delaware Court of Chancery Judge Kathaleen McCormick in January blocked Mr. Musk’s 2018 compensation plan on grounds that some board members who negotiated it were supposedly conflicted. One had business relationships with Mr. Musk going back more than 20 years, and another was a close friend of the CEO’s brother.
The compensation plan provided 12 tranches of stock options, each of which would vest only if Tesla’s market valuation increased by $50 billion and the company hit earnings or revenue targets. Tesla at the time was worth about $50 billion, so Mr. Musk’s stock options would fully vest only if the company achieved a $650 billion market valuation. Its stock is now now valued at about $1.13 trillion.