In a stunning reversal, the Delaware Supreme Court has overturned a previous ruling, restoring Tesla CEO Elon Musk's $55 billion pay package. The decision, delivered Friday, marks a significant victory for Musk, who has long contended that the Delaware legal system overstepped its authority.
The initial compensation package was awarded in 2018 as an incentive for Musk to drive Tesla to new heights. However, in January 2024, Chancellor Kathaleen St. Jude McCormick of the Delaware Court of Chancery rescinded the package following a lawsuit by a Tesla shareholder. McCormick argued that the pay package was crafted by a board that was too closely tied to Musk. She stated that Musk and his attorneys failed to prove the compensation plan was fair and that the milestones to achieve the payout weren't difficult enough.
The Supreme Court's 49-page ruling cited multiple errors in McCormick's 2024 decision, leading to the restoration of the 2018 pay package and also awarding Tesla $1 in nominal damages.
This reversal not only pads Musk's already substantial fortune, estimated at $679 billion, but also validates his belief that the initial ruling was unwarranted.
The saga began in January 2018 when Tesla's board approved the 10-year performance-based compensation plan, potentially worth $55.8 billion, the largest executive compensation award in public market history. A Tesla stockholder, Richard J. Tornetta, then sued Musk and the Tesla board, alleging breach of fiduciary duties in approving the package. In January 2024, the Court of Chancery sided with Tornetta, deeming the pay package unfair and a breach of fiduciary duties. Tesla then sought to have stockholders ratify the package, which they did. However, the court rejected this ratification attempt.
The Court of Chancery's initial decision raised concerns about बोर्ड oversight and director independence when determining significant compensation awards. The court scrutinized the relationships between Musk and key directors, finding that some were inaccurately described as independent and that the proxy omitted key details about the approval process.
Interestingly, Tesla, seemingly anticipating further discontent from Musk, crafted another potential pay package this year. This new package could award Musk $1 trillion if he leads Tesla to increase its market value from $1.6 trillion to $8.5 trillion over the next decade. Shareholders approved this package last month.
The initial ruling against Musk's pay package had spurred him to move Tesla's incorporation from Delaware to Texas. It also pushed Tesla's board to find ways to appease Musk, including the ultimately successful effort to have shareholders reaffirm the package, then valued at $44.9 billion.
