On Monday, a Delaware judge ruled that Elon Musk, CEO of Tesla, is not entitled to the $56 billion compensation package, despite shareholder support. Chancellor Kathaleen McCormick of the Delaware Court of Chancery upheld her earlier January decision, which deemed the package excessive, even after it was reinstated by Tesla's shareholders in June.

Tesla

A Delaware judge has ruled against Elon Musk’s $56 billion compensation package, despite strong support from Tesla shareholders. Chancellor Kathaleen McCormick of the Delaware Court of Chancery upheld her earlier decision that the package was excessive, rejecting Tesla's request to reinstate it. This ruling comes after a shareholder vote in June, which had backed the compensation plan. The decision marks a significant legal development for Musk and Tesla, with implications for the company’s future leadership and governance.

Tesla’s Efforts to Reinstate Musk's Pay Package

Tesla had argued that the judge should consider the results of the June vote, where shareholders expressed support for Musk’s compensation. The company emphasized Musk's pivotal role in Tesla’s growth and innovation, pushing for the reinstatement of the compensation package. However, McCormick rejected the company’s request, standing by her earlier judgment that the package was not justified.

In addition to denying Musk’s compensation claim, the judge ruled that Tesla must pay $345 million in legal fees to the attorneys who initiated the case. While the amount is significantly lower than the $6 billion initially sought, it still represents a substantial sum for the company.

The Background of the Legal Dispute

The legal battle over Musk’s 2018 compensation package began with shareholder Richard Tornetta’s lawsuit in 2018. Tornetta argued that the compensation package, which was tied to ambitious operational and financial goals, was not properly approved by Tesla's board and violated Delaware law. The package, which included stock grants worth approximately 1% of Tesla’s equity, was designed to reward Musk for achieving key targets, such as market value, revenue, and profitability.

However, in her January ruling, Chancellor McCormick criticized Tesla’s board for being overly influenced by Musk. She found that the board members had personal and financial ties to Musk, which created conflicts of interest. McCormick ruled that Musk had improperly influenced the negotiation of his compensation package, ultimately nullifying it.

The Shareholder Vote and Musk’s Reaction

Tesla shareholders made their position clear in June when they voted to support Musk’s pay package. However, McCormick ruled that the vote could not override her previous decision, as Delaware law prevents a company from using a ratification vote to undo a court ruling. The judge’s decision raised concerns among some investors, who feared that the ruling could lead to Musk’s departure from Tesla or his pursuit of other ventures, such as artificial intelligence, outside of the company.

Musk, who has not yet commented on the latest ruling, voiced his frustration with the court’s decisions earlier this year. After Kathaleen McCormick’s January ruling, Musk took to his social media platform, X, to express dissatisfaction with the judge and suggested that other companies consider reincorporating in Texas instead of Delaware. While it remains unclear whether any companies acted on this advice, Musk's comments highlighted the tension between the tech billionaire and the Delaware legal system.