A 2018 pay package from Tesla, worth $56 billion, for Elon Musk was restored by the Delaware Supreme Court on Friday, about two years after a lower court struck down the compensation agreement as “unfathomable.”
This decision reverses a ruling that had caused such an uproar among Musk and harmed the reputation of the State of Delaware as a business-friendly environment.
Reuters reported that it guarantees Musk more control of the company, the primary concern of which he has mentioned, and followed after shareholders recently endorsed a new pay package that could be valued at $878 billion should Tesla satisfy specific objectives.
The Supreme Court indicated that a 2024 decision that canceled the pay package was inappropriate and unfair to Musk. The 49-page ruling issued on Friday stated that the remedy of total rescission “leaves Musk uncompensated for his time and efforts over a period of six years.”
The compensation package of 2018 is currently valued at approximately $139 billion, depending on the value of Tesla stocks at the end of the day trading on Friday.
Managing Partner of Tesla investor of Deepwater Asset Management, Gene Munster, said that “For Elon, this is a win because he gets control faster.”
In case Musk exercises all stock options under the 2018 plan, he would have an increased ownership in Tesla, ranging between 12.4 percent and 18.1 percent of a higher stock base. The company is also issuing shares on the basis of his new pay package, but they must be earned by him through performance goals.
However, the Tesla shares increased less than 1 percent in after-hours trading after the ruling. Tesla did not respond immediately to a request for comment. Musk posted on X (formerly known as Twitter) that he was “vindicated.”
Attorneys objecting to the compensation package indicated in a statement that they were “proud to have participated in the historic verdict below, calling to account the Tesla board and its largest stockholder for their breaches of fiduciary duty.”
Therefore, the pay package was by far the biggest ever until Tesla shareholders approved the new pay plan in November. The failure of the Tesla appeal might have caused a $26 billion blow to profit over two 2-year periods to cover the stock-compensation scheme, which Tesla had offered Musk, a significantly higher stock price.
A pay deal of 2018 offered Musk alternatives to purchase around $304 million worth of Tesla stock at a highly discounted rate, provided that the company achieved multiple goals. The options represent about 9 percent of Tesla’s outstanding stock.
Musk never exercised his stock options since shortly after the stockholders gave their approval to the 2018 compensation, the board was sued by Richard Tornetta, who had nine shares in Tesla.
Following a trial in 2024, Delaware Judge Kathaleen McCormick determined that the directors of Tesla were conflicted and held material facts that they concealed when shareholders took the vote to approve the plan. She ordered that the 2018 plan be rescinded.
Musk alleged that judges in Delaware were activists who were unfriendly to tech founders, and Musk encouraged businesses to go with Tesla and incorporate in other places.
Some of the few large companies that moved their legal homes to Nevada or Texas were Dropbox, Roblox, Trade Desk, and Coinbase. Nevertheless, Delaware continues to dominate as the most tolerant jurisdiction of U.S. public corporations.
The board of Tesla had cautioned that the world’s richest person, Musk, the leader of the SpaceX rocket project and artificial intelligence company xAI, might abandon the electric car company should he fail to receive the remuneration that he desired, as well as the increase in his voting rights.
The Delaware Supreme Court might have been unwilling to reverse the compensation package given to Musk since it was the choice of shareholders by far more than a majority, according to Brian Dunn, director of the Institute of Compensation Studies at Cornell University School of Industrial and Labor Relations.
Dunn added that “I think that there’s some belief that maybe the courts shouldn’t get between the shareholders and the decisions that they make.”
The new pay package was endorsed by shareholders in November, and Tesla has acted to minimize the risk that a shareholder is able to hold the 2025 package as collateral in the courts.
The Austin-based company is now incorporated in Texas, which allows Tesla to require that any investor or group of investors must own 3 percent of the company stock before suing for an alleged corporate law violation. Thus, the stake of that size would be worth nearly $30 billion, and Musk is the only individual with that much stock.
