Delaware Court Orders Rescission of Elon Musk's Mega Equity Grant as Unfair

This unprecedented Delaware decision raises four new questions for compensation committees:

First: Are the members of the compensation committee independent beyond the SEC and stock exchange independence rules? You can’t have close friends approve the grant.

Second: Did approving shareholders receive adequate disclosure of the grant? Be sure to disclose the relationship of the committee members to the CEO and the details of the approval process. Like the Disney case, Musk underscores the benefit of good Committee meeting minutes to use for disclosure purposes.

Third: Is the transaction fair even when shareholders benefit? The transaction may not be fair even if shareholders benefit when it is by far the largest grant in history, the recipient already owns 20% of the company and there is not a convincing rationale of the need for the size of the grant as opposed to some lesser amount.

Fourth: Does it pass the smell test? Does the company have trusted and unbiased advisors who agree?