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Elon Musk’s controversial 2018 compensation package from Tesla, once valued at $56bn, has been reinstated by the Delaware Supreme Court, reversing a lower court ruling that had struck down the deal as “unfathomable” two years earlier.
The decision, issued on Friday, overturns a judgment that triggered a sharp backlash from Musk and raised concerns about Delaware’s long-standing reputation as a business-friendly legal hub. At the time, the compensation package was the largest ever awarded to a corporate executive, until Tesla shareholders approved an even more ambitious pay arrangement in November that could be worth nearly $1 trillion.
With the Supreme Court’s ruling, Musk is now able to finally receive compensation for work dating back to 2018, a period during which he oversaw Tesla’s transformation from a struggling electric vehicle startup into one of the world’s most valuable companies.
Details of the 2018 Pay Package
Under the 2018 agreement, Musk was granted stock options allowing him to purchase approximately 304 million Tesla shares at a heavily discounted price, provided the company achieved a series of operational and market-capitalisation milestones. Tesla went on to meet each of those targets.
At the time the plan was approved, Tesla estimated the total value of the package at around $56bn. However, as Tesla’s share price surged in subsequent years, the value of the options swelled dramatically, reaching roughly $120bn by early November. The options represent close to 9 percent of Tesla’s total outstanding shares.
Despite the approval by shareholders, Musk never exercised or collected the stock options. Shortly after the vote, Tesla’s board was sued by Richard Tornetta, a shareholder who owned just nine Tesla shares, challenging the validity of the compensation arrangement.
Lower Court Ruling and Legal Battle
Following a five-day trial in 2024, Delaware Chancery Court Judge Kathaleen McCormick ruled that Tesla’s directors had been conflicted and that shareholders had not been fully informed when they voted on the pay package. She concluded that critical information had been withheld and ordered that the 2018 compensation plan be voided.
The ruling drew a fierce response from Musk, who accused Delaware’s judiciary of acting as political activists and of being hostile toward technology founders and corporate leaders. He publicly urged companies to follow Tesla’s example and reincorporate outside Delaware.
In the months that followed, several prominent technology firms — including Dropbox, Roblox, The Trade Desk and Coinbase — moved their legal domiciles to states such as Nevada or Texas. Despite these departures, Delaware has remained the dominant legal home for US public companies by a wide margin.
Broader Implications for Tesla and Musk
Tesla’s board has repeatedly warned that Musk, the world’s richest individual and the chief executive of both SpaceX and artificial intelligence startup xAI, could walk away from the electric vehicle maker if he does not receive the compensation and voting power he believes he deserves.
In November, Tesla shareholders approved a new compensation package that could be worth as much as $878bn, depending on whether the company meets ambitious targets related to self-driving technology, the rollout of a robotaxi network, and the commercialisation of humanoid robots.
Steps to Limit Future Legal Challenges
Tesla has also taken measures aimed at reducing the likelihood that shareholders could challenge the new pay package in court. The company, now headquartered in Austin, has reincorporated in Texas, where corporate law allows companies to impose stricter requirements on shareholder lawsuits.
Under Texas law, Tesla can require that any investor or group of investors must hold at least 3 percent of the company’s shares before bringing a lawsuit over alleged corporate governance violations. At current valuations, such a stake would be worth roughly $30bn, a threshold that only Musk himself currently meets as an individual shareholder.
The Supreme Court ruling marks a significant legal victory for Musk and Tesla, reshaping the debate over executive compensation, shareholder rights and the role of corporate courts in overseeing America’s most powerful companies.
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