Elon Musk’s compensation package, worth $56 billion in 2018, which he received from Tesla, which had been nullified as “unfathomable” by a lower court, has been reinstated by the Delaware Supreme Court after nearly two years.
The ruling reverses a decision that had sparked a furious reaction from Musk and hurt the state of Delaware’s reputation as a welcoming place for businesses. The ruling increases Musk’s level of control within the company, which is what Musk is concerned about, even after the shareholders voted to approve a new compensation package worth up to $878 billion if certain targets are met.
The Supreme Court ruled in 2024 that the 2024 ruling invalidating the compensation package was wrongful and unjust on Musk’s part.
Court Says Rescinding Pay Was Unfair to Musk
“The cure of complete rescission leaves Musk uncompensated for his time and efforts over a period of six years,” the 49-page ruling delivered on Friday read. The total compensation package for 2018 now stands at approximately $ 139 billion USD, based on Tesla’s stock price at the end of trading on Friday.
If he exercises all his stock options in the 2018 package, he can increase his holdings in Tesla by 18.1% from the current 12.4% share of the expanded share base. The firm is granting the executive stock in connection with his new pay package, but he must first meet the performance hurdles to qualify.
Lawyers Who Challenged Pay Package Considering Next Steps
Attorneys who disputed the compensation deal said in the statement that they are looking into their next course of action. “We are proud to have participated in the historic verdict below, holding accountable the Tesla board and its biggest stockholder for their breaches of fiduciary duty,” the lawyers said.
The package was the largest compensation package to date until the new plan was approved by Tesla shareholders in November. If Tesla’s appeal had not succeeded, it was likely to result in a $26 billion impact on the profits over a period of two years to account for a new stock compensation package promised to Musk at the current stock prices.
This compensation package gave Musk the option to buy some 304 million shares of Tesla stock if it met certain milestones, which it did. These options amount to around 9 per cent of Tesla’s total stock. This was in 2018. Musk had never exercised his stock options because just after the shareholders had approved his 2018 compensation plan, the company board was sued by Richard Tornetta, an investor who had nine shares in Tesla.
Lower Court Held Directors Were Conflicted
In 2024, after a five-day trial, the Delaware judge, Kathaleen McCormick, determined that the Tesla directors were conflicted and that material facts were withheld from shareholders when the directors approved the plan. She ruled that the plan of 2018 had to be set aside.
Musk accused the judges in Delaware of being activists who dislike tech entrepreneurs. He urged corporations to follow suit and be incorporated in another state. Dropbox, Roblox, Trade Desk, and Coinbase were some of the few large corporations that changed their domicile to Nevada or Texas. Nevertheless, Delaware is still preferred as the domicile of most public corporations in the United States.
The electric car firm’s board of directors had indicated that Musk, the world’s richest individual who is also the founder of the SpaceX rocket project and the artificial intelligence firm, xAI, might walk away from the firm if he failed to receive the desired remuneration packages and a higher level of voting power.
The Delaware Supreme Court might have been unwilling to invalidate the pay package of Musk because the investors had overwhelmingly approved the package, according to Brian Dunn, the director of the Institute for Compensation Studies at the Cornell University School of Industrial and Labour Relations.
The new salary deal was approved by shareholders in November, and Tesla has moved to ensure that the risk of the 2025 package being held up in court by a shareholder is limited.
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