The Delaware Supreme Court is poised to review a prolonged legal dispute surrounding Elon Musk’s massive compensation package as CEO of Tesla. The case revolves around a pay arrangement valued at tens of billions, originally established in 2018.
Overview of the Compensation Package
The compensation structure did not include a base salary for Musk. Instead, it incentivized him with shares based on Tesla’s performance, aiming for ambitious growth targets, including a tenfold increase in company value. At that time, shareholders were informed Musk could potentially earn $55.8 billion if all goals were met.
Tesla’s Growth and Package Value
Fast forward to 2022, Tesla’s rapid growth enabled Musk to unlock the full suite of shares. By mid-October 2025, with Tesla shares priced at approximately $429.24, the effective value of the compensation could surpass $100 billion. This figure would represent the largest known payday for a CEO of a publicly traded company.
Legal Proceedings: Background and Claims
- In 2018, shareholder Richard Tornetta filed a lawsuit against Musk, Tesla, and its board, claiming violations of fiduciary duties.
- The lawsuit argued Musk had undue influence over the board’s decisions regarding his pay.
- Tornetta contended that shareholders were not properly informed about the board’s ties to Musk during the approval process.
The case was filed in Delaware’s Court of Chancery, a court that handles business disputes. Despite Tesla emphasizing that shareholders were informed and supportive, the court ruled in favor of Tornetta.
Lower Court’s Decision
Judge Kathaleen McCormick deemed the compensation exorbitant and instructed Tesla to create a new pay structure. Tesla, however, presented the same plan again in 2024, which was approved by shareholders for a second time. This action was deemed insufficient by McCormick.
Current Court Review
The Delaware Supreme Court now faces critical questions. The justices must determine whether Musk’s compensation package was a result of proper business practices or if it was unduly influenced by Musk’s position. If found legitimate, the court may defer to the original business decisions made by shareholders.
Elon Musk’s Financial Status
Regardless of the lawsuit, Musk holds approximately 13% of Tesla’s stock, benefitting from its market value increase. Additionally, Tesla’s board recently awarded him another $29 billion in shares as an interim measure.
Future Compensation and Shareholder Vote
Looking ahead, Tesla’s board has proposed a new compensation package for Musk that could position him as the world’s first trillionaire. This plan is reliant on various performance targets and will be subject to shareholder approval at a meeting on November 6, 2025.
Impact on Corporate Law and Practice
The lawsuit’s influence may ripple through Delaware’s corporate landscape. Following the initial court decision, Musk indicated a potential relocation of Tesla’s incorporation from Delaware to Texas, echoing a broader trend known as “Dexit.” In response, Delaware has introduced laws aimed at protecting its pro-business image.
As this case unfolds, it highlights the ongoing scrutiny of corporate governance and executive compensation within the fast-evolving world of technology and innovation.
