In a significant legal development, the Delaware Supreme Court has reinstated Elon Musk“s $56 billion compensation package from Tesla, a decision that reaffirms his status among the world”s wealthiest individuals. This ruling, delivered on Friday, reverses a 2024 verdict that had annulled the pay package due to allegations of a compromised approval process.
The court did not dispute the findings that Tesla“s board was overly influenced by Musk, acknowledging that the 2018 compensation plan was advanced by a board too closely aligned with him. However, the justices determined that the complete cancellation of the plan was excessive, emphasizing that such a move left Musk unpaid for his extensive contributions over six years.
Musk”s 2018 compensation included stock grants contingent on Tesla achieving a series of ambitious business objectives. The company has since seen its market valuation soar beyond $1 trillion, significantly benefiting from Musk”s leadership. Consequently, the reinstated package entitles him to 303 million shares, currently valued at nearly $150 billion.
This legal saga began when the Delaware Court of Chancery ruled against Musk in early 2024, with Chancellor Kathaleen McCormick describing him as a “paradigmatic “Superstar CEO”” who wielded too much influence during the approval process. Following this, Musk criticized the ruling as “absolute corruption,” while the board sought to rectify the issue by having shareholders re-vote on the pay package in June 2024. This second attempt garnered over 70% approval from shareholders, primarily retail investors.
Despite this support, McCormick ruled in December 2024 that the new vote could not rectify the board”s initial failings, prompting the case to escalate to the state”s highest court. During a recent hearing, the focus was on the appropriateness of revoking Musk”s full compensation, leading to the supreme court”s decision that the penalties were indeed too severe.
As a result of the ruling, the board has been issued a nominal fine of $1, and the shareholders now await the implications for a separate proposed pay package designed for Musk that could potentially be valued at $1 trillion if all targets are met. This new plan was previously halted pending the outcome of the 2018 compensation package”s fate.
Additionally, the legal team that brought the original lawsuit, led by shareholder Richard Tornetta, has been awarded $54.5 million in legal fees, a significant reduction from their initial claim of $7 billion in Tesla stock.
As Tesla transitions its incorporation to Texas, this case highlights broader changes in corporate governance and shareholder rights, especially as other tech firms consider similar moves away from Delaware. This situation also reflects the state”s recent efforts to tighten regulations around shareholder lawsuits concerning executive compensation.
