Elon Musk has achieved a significant legal victory after the Delaware Supreme Court reversed a previous ruling regarding a substantial pay package awarded to him by Tesla in 2018. This decision reinstates a compensation plan valued at $55 billion, which was designed to incentivize Musk to lead the company toward ambitious growth targets.
The legal battle began when a Tesla shareholder challenged the validity of the pay package, leading to Chancellor Kathaleen St. Jude McCormick’s ruling in January 2024 that rescinded Musk’s compensation. This outcome not only sparked dissatisfaction in Musk but also motivated him to relocate Tesla’s incorporation from Delaware to Texas, seeking a more favorable legal environment.
In light of the intense conflict between Musk and the Delaware court, Tesla’s board made efforts to appease its CEO. Eighteen months ago, they successfully persuaded shareholders to reaffirm the 2018 pay package, which was valued at nearly $45 billion during that second vote. Recently, Tesla went even further by proposing a new pay structure that could see Musk earning as much as $1 trillion if he manages to increase the company’s market value from its current $1.6 trillion to an ambitious $8.5 trillion over the next decade. Shareholders approved this package last month, much to Musk’s satisfaction.
The challenges Musk faces to achieve the targets for both the 2018 and the new pay structures appear daunting. When the original pay package was crafted, Tesla was grappling with significant production issues and a lack of profitability, which constrained its market value to between $50 billion and $75 billion. However, as the company resolved its manufacturing problems, it began to meet increasing demand for electric vehicles, resulting in a substantial rise in sales and stock prices, which ultimately qualified Musk for the previously promised payout.
Despite these recent developments, Chancellor McCormick’s 2024 ruling cited concerns that the compensation package had been developed by a board too closely aligned with Musk’s interests. Her decision was seen as a setback for the CEO, but the Delaware Supreme Court’s recent ruling highlighted several errors in her judgment and mandated that the initial 2018 pay package be reinstated, while also awarding Tesla $1 in nominal damages for the legal proceedings.
As the dust settles, it’s clear that Musk’s financial landscape has become even more fortified through this ruling, reinforcing his position as the world’s wealthiest individual, now boasting a fortune of approximately $679 billion.
