Tesla CEO Elon Musk faced a major legal defeat on Monday when a Delaware court reaffirmed its earlier decision to void his record-breaking $56 billion 2018 compensation package, the largest pay plan in U.S. corporate history.
Chancellor Kathaleen McCormick rejected Tesla’s attempt to overturn her January ruling, stating that the package was approved through a flawed process and heavily influenced by Musk himself.
Tesla responded by announcing plans to appeal the ruling, while Musk denounced the decision on X, the social media platform he owns, calling it “absolute corruption.”
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Background of the Case
The controversial 2018 pay package was structured to provide Musk with stock options valued at $56 billion if Tesla met specific performance milestones, including market capitalization and operational goals. At the time, Tesla’s board described the plan as an innovative way to incentivize Musk, aligning his financial rewards with the company’s success.
However, shareholders filed a lawsuit, alleging that Musk used his dominant influence over Tesla’s board to secure the package. The plaintiffs claimed the board had failed to conduct a fair negotiation or provide proper oversight.
During the trial, Chancellor McCormick agreed with the shareholders, ruling in January 2024 that Musk had “controlled Tesla” and dictated the terms of his pay plan. She described the approval process as “deeply flawed” and stated that the compensation package violated corporate governance principles.
Following the ruling, Tesla attempted to sway the court by holding a shareholder vote in June 2024, asking investors to retroactively approve the pay plan. However, McCormick dismissed this strategy in her Monday opinion, emphasizing that such actions could not alter the original judgment.
“Even if a stockholder vote could have a ratifying effect, it could not do so here,” McCormick wrote in her opinion Monday. “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.”
As part of her ruling, McCormick awarded $345 million in attorney fees to the legal team representing Tesla shareholders. The law firm Bernstein, Litowitz, Berger & Grossmann, which successfully argued the case, praised the decision.
“We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into court proceedings,” the firm said in a statement.
Musk’s Wealth and Position in the Billionaire Index
However, the ruling does not impact Musk’s standing as the world’s wealthiest individual. According to Bloomberg’s Billionaires Index, Musk remains firmly at the top, with a net worth of $ 330.1 billion as of December 2024. His wealth is largely derived from his stakes in Tesla and SpaceX, as well as his recent ventures in AI and social media.
Tesla’s stock price, which has seen significant gains in recent weeks, has bolstered Musk’s fortune. Shares of the electric vehicle giant have surged 42% since November 2024, driven by investor optimism about Musk’s influence on U.S. policies and the company’s growing market dominance. Even without the 2018 pay package, Musk’s Tesla holdings are valued at approximately $150 billion.
Had the pay package remained valid, Equilar estimates suggest its value would have exceeded $101.4 billion at Tesla’s current stock price.
Corporate Governance Concerns
The court’s decision highlights longstanding concerns about corporate governance at Tesla, where critics argue Musk wields disproportionate influence over the board and major decisions. The ruling could set a precedent for greater scrutiny of executive compensation, especially in cases where corporate leaders hold substantial sway over their companies.
Following the January ruling, Musk publicly criticized Delaware’s legal system, advising businesses to avoid incorporating in the state. Tesla subsequently held a shareholder vote to reincorporate in Texas, completing the process earlier this year. Musk’s other ventures, including SpaceX, have also shifted their incorporation to Texas.
For now, Musk’s status as a billionaire entrepreneur remains intact, but the final outcome of the case is expected to have lasting implications for executive pay practices and shareholder rights.