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A Delaware Supreme Court ruling on Friday overturned a lower court’s decision that had nullified electric vehicle maker Tesla CEO Elon Musk’s 2018 compensation plan, potentially restoring the path for Musk to claim a pay package once valued at $56 billion.
The state’s highest court determined that Chancellor Kathaleen McCormick of the Delaware Court of Chancery erred in January 2024 when she rescinded the agreement in response to a shareholder lawsuit. The five-judge panel emphasized that Musk had fulfilled his obligations under the plan and that Tesla, along with its shareholders, had benefited from his performance.
The 2018 package, approved by a majority of Tesla shareholders, was challenged in court by shareholder Richard Tornetta. The case revolved around claims that the board’s approval process was flawed and overly influenced by Musk, whom McCormick described as the quintessential "Superstar CEO."
After a five-day trial, McCormick concluded that the board’s decision-making process lacked independence and transparency. She invalidated the entire package, a decision she reaffirmed in December 2024 despite Tesla’s arguments to preserve the plan.
In Friday’s decision, the Delaware Supreme Court said the rescission was too drastic, noting that such measures should only be applied in cases where they are "clearly necessary." It also highlighted the fact that Musk had already performed under the agreement’s terms, and that shareholders had reaped the benefits from rising stock prices during the vesting period.
The court also ordered the payment of a symbolic $1 in damages, suggesting that while flaws existed in the approval process, the complete cancellation of the package was disproportionate.
Despite the legal hurdles, Tesla’s board has consistently backed Musk. In August, it approved an interim compensation deal worth $29 billion, and in November, shareholders overwhelmingly voted in favor of a new compensation plan with performance-based targets that could ultimately be worth up to $1 trillion.
The reversal now raises the possibility that Musk could claim both the reinstated 2018 package and future incentives, depending on Tesla’s financial and stock performance.
The controversy surrounding the pay package has also had governance implications. After the initial ruling, Musk publicly criticized Delaware’s legal environment and announced plans to relocate Tesla’s incorporation to Texas. Shareholders voted in favor of this move during the company’s annual meeting in June 2024.
Attorneys representing the plaintiff shareholders said Friday that they were reviewing the appellate decision and weighing potential next steps.
According to Forbes' Real-Time Billionaires List, Elon Musk, founder of Tesla and aerospace company SpaceX, is the world's wealthiest person with a $679.3 billion net worth.
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