Court restores Musk’s $US56 billion Tesla pay deal
Elon Musk’s 2018 pay packet from Tesla was upheld by the Delaware Supreme Court, two years after a lower court dismissed the severance agreement as “incomprehensible.”
Friday’s ruling on the pay package, once worth US$56 billion ($85 billion), overturned a decision that sparked an angry response from Musk and damaged Delaware’s business-friendly reputation.
The pay package was the largest ever until Tesla shareholders approved a new, even larger pay plan in November.
The decision means Musk can finally be rewarded for the work he’s been doing since 2018, when he transformed Tesla from a struggling startup into one of the world’s most valuable companies.
The 2018 salary deal gave Musk the option to buy approximately 304 million Tesla shares at a heavily discounted price if the company hit various milestones, which it did.
Tesla estimated in 2018 that the plan was potentially worth US$56 billion ($85 billion), but the value rose to around US$120 billion ($182 billion) in early November given the rise in stock price. The options represent approximately nine percent of Tesla’s outstanding shares. Musk never collected his stock options because shortly after shareholders approved his 2018 compensation, his board was sued by Richard Tornetta, an investor who owns only nine Tesla shares.
In 2024, after a five-day trial, Delaware Judge Kathaleen McCormick concluded that Tesla’s executives were conflicted and that important facts were hidden from shareholders when they voted to approve the plan. He ordered the 2018 plan to be cancelled.
Musk accused the Delaware judges of being activists hostile to tech founders and urged businesses to follow Tesla and regroup elsewhere. Dropbox, Roblox, The Trade Desk, and Coinbase were among a handful of major companies that moved their legal homes to Nevada or Texas. But Delaware remains by far the most popular legal center for public companies in the United States.
Tesla’s board of directors warned that Musk, the world’s richest person who also leads the SpaceX rocket initiative and artificial intelligence initiative xAI, could leave the electric car company if he does not get the salary he wants and his voting power does not increase.
In November, shareholders approved a new pay package that could be worth US$878 billion ($A1.3 trillion) if Tesla meets targets for sales of driverless vehicles, a robotaxi network and humanoid robots.
Tesla has taken steps to reduce the risk of a shareholder tying up its 2025 package in the courts.
The Austin-based company is now incorporated in Texas, which allows Tesla to require any investor or group of investors to own three percent of the company’s shares before filing a lawsuit alleging corporate law violations. A stake that size would be worth around US$30 billion ($45 billion), and Musk is the only person to own that many shares.
