The Delaware Supreme Court reinstated Elon Musk’s 2018 compensation package from Tesla, Inc., which was initially valued at $56 billion. This decision, made on Friday, overturns a previous ruling that had deemed the pay deal “unfathomable.” The court’s ruling not only restores Musk’s financial arrangement but also attempts to mitigate the backlash against Delaware’s reputation as a business-friendly jurisdiction.
Musk’s 2018 pay package was a landmark deal that provided him options to purchase approximately 304 million Tesla shares at a significantly reduced price, contingent upon the company achieving specific performance milestones. Since the approval of this deal, Tesla has seen remarkable growth, transforming from a struggling startup into one of the world’s most valuable companies. Originally estimated to be worth $56 billion, the value of the options surged to around $120 billion by early November 2023.
The legal turmoil surrounding Musk’s pay began when investor Richard Tornetta filed a lawsuit shortly after shareholders approved the compensation plan. In a ruling from 2024, Delaware Judge Kathaleen McCormick found that Tesla’s board had conflicts of interest and failed to disclose critical information to shareholders during the approval process, leading to the initial rescindment of the pay deal.
Musk has publicly criticized the judicial process in Delaware, suggesting that judges in the state exhibit bias against technology founders. He has encouraged companies to consider relocating their legal bases, which has seen some firms, including Dropbox and Coinbase, move to states like Texas and Nevada. Despite these criticisms, Delaware remains a popular choice for incorporation among U.S. public companies due to its established legal framework.
The ruling’s implications extend beyond Musk’s personal finances. Tesla’s board has signaled that Musk, who also leads SpaceX and xAI, could consider leaving the electric car manufacturer if his compensation expectations are not met. In November 2023, shareholders approved a new pay package for Musk that could potentially be worth an astonishing $878 billion, contingent upon achieving ambitious targets related to self-driving technology, a robotaxi network, and humanoid robots.
In a strategic move to mitigate future legal risks, Tesla has incorporated in Texas, which enables the company to impose stricter requirements on shareholders wishing to initiate lawsuits. Under Texas law, any investor or group of investors must hold at least 3% of Tesla’s stock—approximately $30 billion—to pursue claims related to corporate governance.
Musk’s restored pay deal and the subsequent changes in corporate governance reflect the ongoing tensions between shareholder activism and executive compensation in a rapidly evolving business landscape. As Tesla continues to innovate and expand, the implications of this ruling will be closely monitored by both investors and industry observers.
