Delaware Supreme Court Upholds Musk’s $56 Billion Pay Package

In a pivotal decision, the Delaware Supreme Court has ruled in favor of Elon Musk regarding his astonishing $56 billion compensation package from Tesla. This ruling comes after a lower court had dismissed the pay deal as “unfathomable” two years prior. This latest judgment marks a significant moment, especially considering the backlash the previous decision ignited and its impact on Delaware’s reputation as a business-friendly state.

The Return of the Compensation Package

Elon Musk’s 2018 pay package, which is now back in effect, was previously the largest of its kind before Tesla shareholders approved an even grander pay plan worth nearly $1 trillion in November. This ruling means Musk will finally receive compensation for his efforts in elevating Tesla from a fledgling startup to one of the most valuable companies globally since 2018.

How the Pay Deal Worked

The original pay deal entailed stock options allowing Musk to purchase around 304 million shares of Tesla at a favorable price, contingent upon meeting certain performance targets—targets that Musk successfully hit. While Tesla initially estimated the value of this plan at $56 billion, the skyrocketing stock price has inflated this figure to approximately $120 billion by early November. The options constitute about 9% of Tesla’s outstanding shares.

Challenges and Legal Disputes

Despite this lucrative arrangement, Musk was unable to cash in on his stock options due to a lawsuit initiated by Richard Tornetta, a shareholder holding a mere nine shares. Following a five-day trial in 2024, Delaware Judge Kathaleen McCormick ruled that Tesla’s board members had conflicts of interest and concealed critical information from shareholders during the plan’s approval process. Consequently, she ordered the 2018 agreement to be annulled.

Musk’s Response and Broader Implications

Musk expressed frustration, labeling the decisions of Delaware judges as activist and indicating a hostility towards technology entrepreneurs. He urged other businesses to consider relocating their legal bases away from Delaware, which has seen some major companies like Dropbox, Roblox, and Coinbase shift their operations to states like Nevada and Texas. Nonetheless, Delaware continues to be the top choice for many U.S. public companies.

The Future of Tesla and Musk’s Leadership

As the richest person in the world, with ventures like SpaceX and xAI, Musk’s presence is crucial for Tesla. However, the board has cautioned that Musk might contemplate leaving the company if his compensation demands are not met or if his voting power isn’t increased. In November, shareholders sanctioned a new pay structure that could potentially reach $878 billion, contingent on achieving ambitious goals like establishing a robotaxi network and advancing humaniod robot sales.

Tesla has proactively sought to mitigate the risk of additional shareholder lawsuits regarding the 2025 pay package. The company, now incorporated in Texas, mandates that any investor seeking to file a lawsuit for alleged corporate law violations must own at least 3% of the company stock—approximately valued at around $30 billion. Currently, Musk remains the only person with sufficient holdings to meet this threshold.

Conclusion

The Delaware Supreme Court’s recent decision revives Musk’s colossal compensation package, underscoring the ongoing complexities surrounding executive pay in the tech industry. As Tesla continues to push boundaries with its innovative projects, the resolution of this legal battle will play a critical role in shaping its future and Musk’s leadership within the company.

• The Delaware Supreme Court reinstated Musk’s $56 billion compensation package.
• The ruling overturns a previous court’s dismissal of the pay deal.
• Musk’s stock options represent about 9% of Tesla’s outstanding shares.
• Tesla’s incorporation in Texas imposes new legal requirements for potential lawsuits.