Tesla CEO Elon Musk is not entitled to a nearly $56 billion compensation package awarded by Tesla’s board of directors, a Delaware judge ruled Tuesday, siding with a shareholder who said Claims the entrepreneur was overpaid.

A Delaware Chancery Court judge ruled that the plaintiffs, who are Tesla shareholders, are “entitled to set aside” and approved the annulment of Musk’s 2018 compensation agreement. Judge Catherine McCormick added that the parties must now “consult” and then submit a joint letter “identifying all issues that need to be resolved, including costs, in order to reach a conclusion at the trial stage.”

“Swayed by the ‘all is well’ rhetoric, or perhaps dazzled by Musk’s superstar appeal, the board never asked the $55.8 billion question: Whether it was necessary for Tesla to preserve the plan and achieve its goals ?” Judge McCormick wrote. She added in her 201-page opinion: “The size of the largest compensation package ever – unfathomable in size – appears to be designed to help Musk achieve what he believes in ‘creating a better future for humanity.’ And carried out.”

“Never set up your company in Delaware,” Musk wrote in a message posted on X, formerly Twitter, shortly after the decision was announced. Musk’s attorney did not immediately respond to a request for comment. .

The electric car maker’s shares fell more than 3% in after-hours trading following the release of the 200-page ruling. Greg Varallo, who represented shareholders, said in a statement: “We are extremely grateful to the court for its thorough and extremely reasonable decision to eliminate the substantial compensation package provided to Musk by Tesla’s board of directors.” He added: “The court’s hard work will directly reward Tesla investors, who will see the dilution of this massive compensation package eliminated.”

‘Largest’ compensation ever

McCormick wrote in his decision that Musk’s 2018 compensation plan represents “the largest potential compensation opportunity observed in the public markets, by multiple orders of magnitude.” The unusual plan, worth up to $55.8 billion, would allow Musk to receive Tesla stock in 12 tranches based on meeting certain performance criteria. Musk, Tesla and several other members of the company’s board of directors have been sued; the case is set to go to trial in 2022.

During the trial in Delaware, Musk told the court that investors “thought we were going to fail and go bankrupt” when the pay deal was approved. “We were in a very difficult situation. We lost a lot of money,” he said. “The likelihood of survival is extremely low.” Since the deal was announced, Tesla’s shares have soared, making it the world’s most valuable automaker and propelling the South African-born, naturalized U.S. citizen into the ranks of the world’s richest people.

‘Seriously flawed’

McCormick wrote in the ruling that “the process that led to the approval of Musk’s compensation plan was seriously flawed” given Musk’s “extensive relationships” with deal negotiators. That includes compensation committee chair Ira Ehrenpreis, whom McCormick said Musk has had a 15-year relationship with.

She added that another member of the committee, Antonio Gracias, has had a business relationship with Musk for more than two decades and regularly vacations with Musk’s family. “Given the large number of people negotiating on behalf of Tesla, it is not surprising that there were no meaningful negotiations on any terms of the plan,” she added.

(Institutional investment)