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The Delaware Supreme Court reinstated a $56 billion pay package for Elon Musk, ruling that canceling in 2024 was an unfair remedy to the pay plan provided by a company board beholden to the Tesla chief.
“Complete removal would not provide Musk with any compensation for his time and efforts over a six-year period,” the court wrote in an opinion released Friday.
The high court confirmed that Tesla’s board improperly approved a stock grant worth millions of shares to Musk in 2018 if Tesla reached several operational and financial milestones under his watch. But it concluded that withdrawing the scheme altogether was not an appropriate remedy for the misstep.
The uproar over the 2024 decision ultimately prompted the Tesla board to offer a new pay deal this year, easily approved by shareholders in November, that could be worth up to $1 trillion if all thresholds are met, reinvigorating the billionaire entrepreneur’s popularity. But the Tesla board said it would withdraw the latest grant if the Delaware Supreme Court reinstated the 2018 package.
The 303 million shares returned to Musk under the decision are worth about $150 billion today.
As a remedy for breach of duty, a Delaware trial court voided Musk’s 2018 pay deal. On Friday, Delaware’s high court said that, even if Tesla’s board had improperly approved the stock grants, shareholders should have benefited from Musk’s efforts between 2018 and 2024, a time when the company’s market capitalization exceeds $1tn.
“It is undisputed that Musk performed fully under the 2018 grant and that Tesla and its shareholders were rewarded for their work,” the court wrote.
In early 2024, the lower Delaware Court of Chancery ruled that the process behind approving the grant in 2018, which was approved by a majority shareholder vote at the time, was flawed due to the board’s close personal and business ties with Musk.
Chancellor Kathleen McCormick wrote in her 2024 opinion, “Musk was the ideal ‘superstar CEO’ … and dominated the process that led to board approval of his compensation plan.”
Tesla protested that decision by asking shareholders to vote again on the package in June 2024, a referendum that passed with more than 70 percent support. McCormick ruled in December 2024 that the second vote could not overrule his first decision.
In oral arguments in the Delaware Supreme Court two months ago, the justices indicated that their focus was on whether canceling the plan was the right punishment for the board’s flawed approval process.
In the opinion released Friday, the court awarded only nominal damages of $1 for the Tesla board’s errors.
However, the Delaware Supreme Court awarded a fee of $54.5 million to the lawyers leading the case for the plaintiff, Tesla shareholder Richard Tornetta, who filed the initial lawsuit alleging the pay package was unfair. Lawyers had initially asked for $7 billion in shares in Tesla, although the trial court reduced that to a $345 million award.
A plaintiffs attorney from Bernstein Litowitz said Friday: “We thank the judges for their attention, hard work and time on the case and are looking forward to our next steps. We are proud to participate in the historic verdict… holding the Tesla board and its largest shareholder accountable for breaches of fiduciary duty.”
In November, Tesla shareholders approved a new pay package for Musk that could reach $1 trillion if all operational and financial milestones are hit, though the Tesla board said it would withdraw that grant if the Delaware Supreme Court reinstated the 2018 package.
The original Delaware trial court decision prompted Musk to accuse the court of “complete corruption”.
Tesla moved its incorporation to Texas, and several other big technology companies, including Dropbox and Coinbase, have since moved to Texas or Nevada. Delaware, where the vast majority of US public companies are incorporated, has since tightened its corporate laws, making claims over the Musk pay package more difficult to bring by shareholders.
