The Delaware Supreme Court ruled Friday that Elon Musk’s record-setting 2018 CEO pay package from Tesla, once valued at approximately $56 billion when fully vested, must be reinstated, overturning a lower court’s decision that had previously voided the package.
The case, In re Tesla, Inc. Derivative Litigation, stemmed from a lawsuit pushed by trial lawyers and embraced by Delaware’s Court of Chancery, which ordered the rescission of Musk’s performance-based compensation despite the fact that Musk fully achieved every required milestone.
The compensation package, which was the largest ever awarded to a corporate executive, played a crucial role in Musk’s rise to becoming one of the richest individuals in the world.
Chancellor Kathaleen St. Jude McCormick criticized the process by which Musk’s compensation plan was approved, highlighting Musk’s significant influence over the compensation committee and board members, many of whom have strong personal ties to him.
“The concept of fairness calls for a holistic analysis that takes into consideration two basic issues: process and price,” the judge wrote.
“The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
Musk himself openly rejected Delaware after the initial ruling, relocating Tesla’s corporate charter to Texas.
On Friday, the Delaware Supreme Court overturned the Chancery Court’s extreme decision to rescind the compensation entirely.
Instead of upholding the lower court’s scrutiny of executive compensation, the state’s highest court sided with Musk and Tesla’s board, declaring that stripping the pay package entirely was “inequitable” and would leave Musk uncompensated for six years of service.
The 2018 compensation plan was unlike anything in corporate history. Musk would receive nothing unless Tesla hit towering market-cap and operational benchmarks, targets many critics said were impossible. Musk proved them wrong.
Under his leadership:
- Tesla’s market capitalization exploded from roughly $50 billion to well over $600 billion.
- Shareholders voted twice to approve Musk’s pay package.
- Musk worked for years without a guaranteed salary, betting entirely on results.
Yet the Delaware Court of Chancery, citing subjective notions of “fairness,” attempted to nullify the deal after the fact, despite Musk’s complete performance.
The Supreme Court wasn’t having it.
In its ruling, the Court made clear that rescission was inappropriate and inequitable, noting that Musk could not be returned to the “status quo ante” after six years of grueling work and extraordinary value creation.
In plain English: you cannot erase labor already performed simply because activists dislike the outcome.
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