xAI and Tesla CEO Elon Musk is hoping a years-long legal battle over his record $56 billion pay package from Tesla comes to an end on Wednesday. His attorneys are set to appear before the Delaware Supreme Court to plead for the reinstatement of the compensation plan rescinded two years ago by a lower court ruling in Delaware.
The Tesla CEO appealed the ruling on his 2018 compensation plan approved by Tesla shareholders, to reward him only if the company hit ambitious growth targets.
As seen on court filings, the structure consisted entirely of Tesla’s stock market value and operational performance.
Elon Musk’s attorneys: Musk compensation plan does not affect investors
According to Tesla’s lawyers, the package was fair, and it motivated Musk to fight for the company’s success and, by extension, its shareholders’ profits.
“Against all odds and with many betting against him, Musk grew Tesla’s value by roughly 1,400%, with stockholders keeping more than 90% of that explosive growth,” the company’s legal team wrote in one filing.
Delaware’s Court of Chancery Judge Kathaleen McCormick crushed the CEO’s compensation dreams by ruling in favor of Tesla shareholder Richard Tornetta in 2023, who had sued to block the plan years earlier.
Tornetta owned just nine Tesla shares at the time of the lawsuit, but accused Musk and the board of violating their fiduciary duty to act in the best interests of the company and its shareholders.
Tornetta’s 2018 lawsuit alleged that Musk exerted outsized control over Tesla’s board, influencing the decision to grant him a pay deal that was “unfathomable” in scale. He claimed that directors were not truly independent and failed to negotiate on behalf of shareholders. The case was filed when Tesla was still incorporated in Delaware.
Judge McCormick sided with Tornetta, finding that Musk’s influence over the board undermined the fairness of the negotiation. She ordered Tesla to revoke the $56 billion plan and draft a new compensation package in tandem with fairness standards.
Tesla resubmitted the same pay structure to shareholders in 2024, where it passed again by a large majority. McCormick, however, rejected the second vote, saying it did not qualify as a new plan under her directive.
Final appeal before Delaware Supreme Court closes in
Delaware’s Supreme Court five-justice panel will review both the lower court’s decision and the related $345 million legal fee McCormick awarded to Tornetta’s attorneys. The justices will have to determine whether the package represented a legitimate corporate move or reflected undue influence and inadequate disclosure.
If the court finds the decision was fairly made, it will likely reinstate the package. If not, it could affirm the ruling that struck it down in 2023. Tesla has already agreed to a replacement deal reached in August if Musk loses the appeal, where the billionaire could still receive tens of billions of dollars in stock compensation.
After McCormick’s decision, several companies, including Tesla itself, Dropbox, and Andreessen Horowitz, moved their corporate registration from Delaware to states like Texas and Nevada, where shareholders are not quite successful in challenging board decisions.
The “Dexit” exodus prompted Delaware lawmakers to amend corporate statutes to prevent companies from bidding bye to the US State.
“There have been a string of decisions in Delaware Chancery Court that have begun to shake the faith of the corporate folks who are incorporated there in Delaware,” said Beth Boland, a partner with Wisconsin-based firm Foley and Lardner.
In other related news, Tesla’s board has proposed a new long-term compensation package for Musk that, if fully realized, could make him the world’s first trillionaire. The proposal is almost similar to the structure of the 2018 deal of stock-based and entirely contingent on performance targets, but introduces new targets tied to Tesla’s business model.
Some of the benchmarks Musk has been tasked with improving are the number of subscribers to Tesla’s “Full Self-Driving (Supervised)” software, the deployment of robotaxis, and the company’s overall financial performance. Shareholders are set to vote on this new plan at Tesla’s annual meeting on November 6.
According to a Reuters analysis, Musk could still earn billions under the plan even if some of the company’s most ambitious technological goals, like achieving fully autonomous driving, are not met.
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