Elon Musk’s expansive $56 billion pay package from Tesla has been reinstated by the Delaware Supreme Court, marking a significant turn in a legal battle that began years ago. This ruling comes two years after a lower court deemed the compensation deal “unfathomable” and struck it down. Today, the reinstated package has the potential to balloon to a staggering $139 billion, as reported by the New York Times. This decision follows a recent approval from Tesla shareholders for a new compensation plan that could see Musk, who currently holds the title of the world’s richest individual with an estimated fortune of $600 billion, receiving up to $1 trillion over the next decade.
The Delaware justices argued that rescinding the pay deal would be “inequitable,” suggesting it would leave Musk “uncompensated for his time and efforts over a period of six years.” Their rationale echoed earlier sentiments expressed by Tesla’s board members, reaffirming the necessity of compensation aligned with Musk’s extensive contributions to the company.
In November, during Tesla’s annual meeting in Austin, Texas, shareholders had taken steps to secure Musk’s compensation regardless of the Delaware Supreme Court’s forthcoming decision. This assurance came amid expectations that Musk’s ambitious targets related to product development and company valuation—set at an astronomical $8.5 trillion—were to be met in order for him to fully benefit from his pay packages.
The legal saga dates back seven years to when a shareholder, who held a mere nine shares, filed a lawsuit claiming that the lavish pay structure was designed to excessively enrich one of the wealthiest individuals in the world. Following that lawsuit, the original compensation package was invalidated, prompting Musk to express his discontent. His frustrations extended beyond the financial realm; he relocated Tesla’s headquarters from Delaware to Texas and openly criticized the state, particularly targeting Chancellor Kathaleen McCormick, dubbing her the most damaging judge in Delaware’s modern history.
In a subsequent shareholder vote in 2024, the pay package was again brought to the table, but McCormick once more ruled against it, stating that Musk had too much influence in the creation of his own compensation plan and that stockholders were not adequately informed. Musk’s dissatisfaction with his treatment by Delaware’s judicial system continued, as he suggested that any lawyer recommending Delaware for incorporation could be guilty of malpractice.
While the Supreme Court majority endorsed McCormick’s earlier findings related to breaches of fiduciary duty during the development of the original pay package, they concluded that rescinding Musk’s complete compensation was unwarranted, assigning just $1 in nominal damages to the plaintiff.
Musk has also called for other companies to reconsider their incorporation in Delaware. Historically a favorable jurisdiction for corporate registrations, with more than 60% of Fortune 500 companies based there, only a few firms have acted on these recommendations. Notable moves include Dropbox and Coinbase, although major tech players like Meta have only threatened to make a shift. As the legal battles and compensation discussions continue, the implications of this ruling may reverberate in corporate governance discussions for years to come.
