The Delaware Supreme Court has mandated the reinstatement of Elon Musk’s 2018 compensation package from Tesla, a deal valued at approximately $56 billion upon vesting. The court’s decision overturns a previous ruling that had voided the package.
In their opinion, the judges stated that the lower court’s remedy of rescission was excessive and that Tesla had not been afforded an adequate opportunity to present arguments for a fair compensation determination. This ruling, in the case known as Tornetta v. Musk, appears to bring a lengthy legal battle over Musk’s record-setting pay to a close.
While the pay package is set to be restored, legal experts note that other aspects of the lower court’s decision remain intact. Specifically, the finding that Musk exercised control over Tesla and that the compensation plan was arranged under unfair circumstances was not reversed.
The 2018 compensation plan, a significant driver of Musk’s wealth and a key factor in his status as the world’s wealthiest individual at the time, consisted of 12 tranches of stock tied to specific performance milestones. A shareholder lawsuit, filed in 2018, alleged breach of fiduciary duty by Musk and the Tesla board. The Delaware Court of Chancery had previously ruled the plan was improperly approved and ordered its cancellation.
The Chancellor’s ruling highlighted concerns about Tesla’s corporate governance, finding that Musk controlled the company and that the approval process for his pay was “deeply flawed,” including insufficient disclosure to investors. Following this ruling, Musk publicly criticized the Chancellor and advocated for companies to re-incorporate outside of Delaware, a state where Tesla was previously domiciled. Tesla also held a subsequent shareholder vote in 2024 to ratify the 2018 pay package.
Coinciding with these legal developments, a law firm representing Tesla was involved in drafting legislation to reform Delaware’s corporate law. This bill, passed by the Delaware legislature in March, could have potentially influenced the outcome of this case had it been applied retroactively.
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