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The Delaware Supreme Court has reversed a lower court ruling that had voided Elon Musk’s 2018 Tesla compensation package, reinstating the award while still finding aspects of the process inequitable.
The decision restores a performance based pay plan originally approved by Tesla shareholders in 2018 and valued at about $55billion at the time. At current share prices, the award is worth significantly more if all milestones are met.
While reinstating the package, the court imposed nominal damages of $1 on Musk and ordered that the plaintiffs’ legal team recover attorneys’ fees, which are expected to total hundreds of millions of dollars.
Court weighs remedy options
The ruling overturns a prior decision by the Delaware Court of Chancery, which had rescinded the entire compensation award after finding that Tesla misled shareholders and that the board lacked independence when it approved the deal.
The Supreme Court agreed that the compensation process raised fairness concerns but said the remedy ordered by the lower court went too far. It said the plaintiffs sought only full rescission of the package rather than partial relief, leaving the court with limited options.
The justices said they were not presented with an argument for reducing the award and declined to create a partial remedy on their own, instead choosing between reinstating the full package or eliminating it entirely.
The court also rejected the argument that appreciation in Musk’s existing Tesla stock holdings should be treated as sufficient compensation, concluding that he was entitled to be paid for his work.
Shareholder votes and board actions
The compensation plan was originally approved in 2018 and tied to a series of market value and operational milestones. It would dilute existing shareholders by about 8% if fully awarded.
Following the Chancery Court ruling, Tesla held another shareholder vote approving the same package. That vote was also rejected by the lower court.
During the appeal process, Tesla’s board awarded Musk $26billion in stock without a shareholder vote. The award was structured to be forfeited if the Supreme Court ruled in Musk’s favor.
More recently, Tesla shareholders approved a separate compensation plan that could grant Musk stock worth substantially more if additional milestones are achieved, further increasing potential dilution.
Tesla previously moved its legal domicile out of Delaware following the Chancery Court decision, after Musk publicly criticized the state’s courts and corporate law environment.
The Supreme Court ruling is expected to mark the final legal chapter in the dispute over the 2018 pay package, closing a case closely watched by boards, compensation committees, and HR leaders overseeing executive pay governance.
