In a landmark decision that concludes a protracted legal battle, Elon Musk has secured a massive victory with the Delaware Supreme Court paving the way for him to receive a controversial Tesla pay package worth approximately $55 to $56 billion. The ruling, delivered on Friday, overturns a previous judgment that had nullified what is considered the largest executive compensation deal in corporate history.
A Reversal of Fortune for the Tesla CEO
The state's top court reversed a January 2024 judgment by Delaware Chancery Court Judge Kathaleen St. Jude McCormick. Judge McCormick had rescinded the 2018 performance-based award, stating that Tesla's board was too closely tied to Musk and failed to ensure a fair approval process. She had labeled the process as "deeply flawed" and noted that Musk effectively controlled the company at the time.
However, in a 49-page ruling, the Delaware Supreme Court found that the lower court overstepped by cancelling the entire package. The judges emphasized that Musk had fully met the ambitious performance targets set in 2018, which were tied to Tesla's market value and operational milestones. "It is undisputed that Musk fully performed under the 2018 grant, and Tesla and its stockholders were rewarded for his work," the court stated. The package was restored, and Tesla was awarded $1 in nominal damages.
Implications for Musk, Tesla, and Delaware
This decision significantly bolsters Elon Musk's vast wealth, estimated at around $679 billion. It also validates his long-standing criticism of Delaware's corporate legal environment. Following the unfavorable 2024 Chancery Court ruling, Musk had publicly attacked the judge, urged entrepreneurs to avoid incorporating in Delaware, and successfully moved Tesla's state of incorporation to Texas.
The original 2018 deal was structured during a challenging period for Tesla, when its valuation was between $50 billion and $75 billion and it faced significant production hurdles. The package set steep targets, which Tesla spectacularly achieved in subsequent years through improved manufacturing, surging sales, and a skyrocketing market capitalisation.
Shareholder Challenge and Board Support
Despite initial shareholder approval in 2018, investor Richard Tornetta filed a lawsuit arguing the compensation was excessive. Although Tesla shareholders voted again in 2024 to reaffirm the package, Judge McCormick had stood by her decision to cancel it—a stance now overturned.
Tesla's board has consistently supported Musk. In recent years, it approved an interim compensation award worth about $29 billion and later proposed an even more ambitious long-term plan. Shareholders approved this new package last month, which could be worth up to $1 trillion if Musk guides Tesla to increase its market value from about $1.6 trillion to $8.5 trillion over the next decade.
Legal experts point out that while the Supreme Court restored the pay package, it did not reverse all of Judge McCormick's factual findings regarding Musk's influence over Tesla. Lawyers for the shareholder who brought the case stated they are considering their next steps.
