Elon Musk has secured a major legal victory as the Delaware Supreme Court overturned a previous ruling and restored his 2018 Tesla pay package, initially valued at $56 billion. The decision, delivered on Friday, reverses a lower court's judgment from two years prior that had deemed the compensation deal "unfathomable".
This ruling puts an end to a protracted legal battle that sparked considerable controversy and even led to criticism from Musk regarding the Delaware judiciary. Musk had accused Delaware judges of being hostile to tech founders, which prompted some companies to move their legal homes to other states like Nevada and Texas. Despite this, Delaware remains the most popular legal home for U.S. public companies.
The 2018 pay package granted Musk options to purchase approximately 304 million Tesla shares at a significantly reduced price, contingent upon the company achieving specific milestones. Tesla successfully met these milestones, transforming itself from a struggling startup into one of the world's most valuable companies. While the initial estimate of the plan's worth was $56 billion, the surge in Tesla's stock price had increased its value to around $120 billion by early November. Some reports now estimate the value to be around $155 billion. These options represent approximately 9% of Tesla's outstanding stock.
Musk never actually received the stock options because shortly after shareholder approval in 2018, a lawsuit was filed by Richard Tornetta, an investor holding a mere nine Tesla shares. In 2024, following a five-day trial, Judge Kathaleen McCormick of the Delaware Court of Chancery concluded that Tesla's directors had conflicts of interest and that crucial information was withheld from shareholders when they voted to approve the plan. Consequently, she ordered the rescission of the 2018 plan.
Tesla's board has cautioned that Musk, also the head of SpaceX, might dedicate less time to Tesla if the pay package was not reinstated. This compensation is designed to reward Musk for his exceptional performance since 2018.
