On Monday, Tesla CEO Elon Musk faced a significant legal defeat as a Delaware judge refused to reinstate his monumental 2018 CEO compensation package, worth approximately $56 billion. This package, recognized as the largest in U.S. history for a public company executive, was deemed improperly granted. Tesla has announced its intention to appeal the decision through a post on X, the social media platform owned by Musk. In his response on the same platform, Musk condemned the ruling as “absolute corruption.”
The legal battle began in January when Chancellor Kathaleen McCormick ruled against Musk’s pay plan. She concluded that Musk had exerted individual control over Tesla, dictating the terms of his compensation without a fair negotiation process from the board. The judge described the circumstances under which the package was approved as “deeply flawed.”
In an effort to reverse the court’s decision, Tesla held a shareholder vote in June at its annual meeting in Austin, Texas, seeking investor ratification of Musk’s compensation package. Musk’s legal team argued that the outcome of this vote justified a reassessment of the ruling. However, McCormick dismissed this argument in her Monday opinion, stating, “Even if a stockholder vote could have a ratifying effect, it could not do so here. Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable.”
McCormick’s latest ruling also included a $345 million attorney fee award for the legal team that successfully challenged Musk’s pay plan on behalf of Tesla shareholders. The plaintiff’s legal representatives, Bernstein, Litowitz, Berger & Grossmann, expressed satisfaction with the outcome. “We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into Court proceedings and thank the Chancellor and her staff for their extraordinary hard work in overseeing this complex case,” they said in a statement.
The 2018 pay plan’s cancellation was part of a broader dispute between Musk and the Delaware court. After the January ruling, Musk criticized the state’s judicial system, advising companies against incorporating in Delaware through a post on X: “Never incorporate your company in the state of Delaware.” Subsequently, Tesla initiated a shareholder vote to shift its incorporation to Texas, a move that was ultimately carried out. Musk also transitioned the state of incorporation for SpaceX, his defense contractor company, from Delaware to Texas.
Despite this legal challenge, Musk’s financial fortunes have soared in recent weeks. Excluding the disputed pay package, his net worth has increased by over $43 billion since Donald Trump’s election victory in November. Tesla shares have surged 42% in the four weeks following the election, driven by investor optimism that Musk’s favorable relationship with Trump could lead to advantageous policies for his businesses.
Musk’s current Tesla stock holdings are valued at nearly $150 billion based on Monday’s closing price, solidifying his position as one of the wealthiest individuals in the world. Without accounting for his SpaceX stake, this valuation alone underscores his immense financial clout. Meanwhile, Equilar, a compensation analytics firm, estimated that at Tesla’s present stock price, Musk’s 2018 pay package would have risen in value to $101.4 billion.
Musk’s response to the Delaware court ruling highlights his ongoing clash with the state’s legal framework, as well as his willingness to explore alternative jurisdictions for his business ventures. The case continues to capture attention due to its implications for corporate governance and executive compensation practices in public companies.
