Delaware Supreme Court Restores Elon Musk's Tesla Pay Package

Elon Musk's 2018 pay package from Tesla, once worth $56 billion, was restored by the Delaware Supreme Court on Friday, nearly two years after a lower court struck down the compensation deal as "unfathomable." The ruling overturns a decision that had prompted a furious backlash from Musk and damaged Delaware's business-friendly reputation. It assures Musk greater control over the company, which he has said is his main concern, even after shareholders recently approved a new pay package that could be worth $878 billion if Tesla meets certain targets.

The Supreme Court said a 2024 ruling that rescinded the pay package had been improper and inequitable to Musk.

The remedy of total rescission "leaves Musk uncompensated for his time and efforts over a period of six years," the 49-page ruling issued on Friday stated.

The 2018 pay package is now worth about $139 billion based on the price of Tesla's stock at the close of trading on Friday.

"For Elon, this is a win because he gets control faster," said Gene Munster, managing partner at Tesla investor Deepwater Asset Management.

If Musk exercises all the stock options from the 2018 package, his stake in Tesla would grow from about 12.4 per cent to 18.1 per cent of an expanded share base. The company is issuing shares tied to his new pay package, although he must earn them by hitting performance goals.

Tesla shares were up less than 1 per cent in after-hours trading following the ruling.

Tesla did not immediately respond to a request for comment. Musk posted on X that he was "vindicated."

Lawyers who challenged the pay package said in a statement that they were considering their next steps and were "proud to have participated in the historic verdict below, calling to account the Tesla board and its largest stockholder for their breaches of fiduciary duty."

The pay package was by far the largest ever until Tesla shareholders approved the new pay plan in November. If Tesla's appeal had failed, it could have triggered a $26 billion hit to profit over two years to account for the replacement stock-compensation package it had promised Musk – at today's much higher stock price.

The 2018 pay deal provided Musk options to acquire about 304 million Tesla shares at a deeply discounted price if the company hit various milestones, which it did. The options represent around 9 per cent of Tesla's outstanding stock.

Musk never collected his stock options because soon after shareholders approved the 2018 compensation, the board was sued by Richard Tornetta, an investor with nine Tesla shares.

In 2024, after a five-day trial, Delaware Judge Kathaleen McCormick concluded that Tesla's directors were conflicted and key facts were hidden from shareholders when they voted to approve the plan. She ordered that the 2018 plan be rescinded.