Delaware Supreme Court Restores Elon Musk's Tesla Pay Deal

The Delaware Supreme Court on Friday reinstated Elon Musk’s 2018 Tesla pay package, ruling that the previously rescinded compensation plan should be restored and that the remedy of total rescission was improper. The decision overturns a 2024 ruling by a Delaware judge that voided the package, a verdict that had drawn sharp public and industry criticism and raised questions about Delaware’s standing as a home for corporate governance.

The 2018 plan granted Musk stock options to acquire about 304 million Tesla shares at a deeply discounted price if the company hit a series of milestones. The options represented roughly 9% of Tesla’s outstanding stock at the time the plan was approved by the board and shareholders. Musk never exercised the options because, soon after the plan was approved, a lawsuit was filed against Tesla’s directors by investor Richard Tornetta, a shareholder with a small stake, signaling the potential for conflict surrounding the compensation scheme.

The Delaware Supreme Court’s ruling centers on the premise that the remedy of rescinding the plan entirely would have left Musk uncompensated for six years of work that helped transform a struggling automaker into a global tech and energy company. The 49-page opinion said a full rescission would be inequitable and that restoring the plan is the appropriate course. The decision does not mandate immediate payment but maintains Musk’s eligibility to receive compensation under the 2018 package if the company continues to meet the milestones.

Tesla shares moved modestly in after-hours trading following the ruling, and the company did not immediately comment. Musk, who also leads SpaceX and the artificial-intelligence venture xAI, wrote on X that he felt “vindicated.” The ruling preserves the potential for Musk to be compensated for his work spanning the period since 2018, a period during which the company rose from a troubled startup to one of the world’s most valuable automakers.

The legal fight over the 2018 package had already reshaped some corporate governance dynamics in Delaware. In 2024, Judge Kathaleen McCormick found that Tesla’s directors were conflicted and that key facts had been hidden from shareholders when the plan was approved. She ordered the 2018 plan rescinded, which, if upheld, would have required Tesla to replace the compensation with a new plan that could be far more costly given Tesla’s then-current stock price. The Delaware Supreme Court’s decision reverses that outcome and reinstates the original framework—though the practical effect depends on whether the company and Musk meet the milestones and how the plan is subsequently managed.

Beyond the 2018 arrangement, the case has continued to influence how corporate boards structure executive pay and how states balance corporate flexibility with investor protections. Tesla, which has restructured its corporate domicile in recent years, now operates under Texas law for certain corporate governance considerations. The company’s move to Texas was cited in related discussions about limiting potential shareholder-led challenges to large compensation schemes. A 3% ownership threshold to sue under Texas corporate law has been cited as a mechanism designed to reduce the likelihood that a handful of investors can derail major compensation plans for years, though it also concentrates risk among the largest individual holders. A stake of that size would be worth about $30 billion, according to stock-price estimates around the time the new framework was discussed, and Musk would be the only individual with that much stock.

In November, Tesla shareholders approved a new pay package that could be worth up to $878 billion if the company meets milestones spanning self-driving capabilities, a robotaxi network, and humanoid-robot sales. The plan is designed to align compensation with long-term growth and strategic goals, though it also underscores the magnitude of the company’s ambition and the scale of potential rewards for Musk. Tesla has said little publicly about the specifics of how this framework would be implemented or the sequence of milestones, leaving many details subject to future negotiations and market conditions.

The Delaware decision could influence how large compensation packages are viewed in the broader market, particularly for founders and executives who have led transformative growth but faced scrutiny over pay. It adds another layer to the ongoing debate about whether ultra-high executive pay aligns with shareholder value and corporate governance norms. Analysts noted that while the decision resolves one legal hurdle for Musk and Tesla, the long-term financial implications remain tied to performance and the practical administration of the 2018 framework and any successor plans.

As the industry watches, Musk’s public statements and the company’s actions suggest a continuing commitment to ambitious growth initiatives. In the wake of the ruling, investors will likely scrutinize how Tesla balances the incentives for leadership with disciplined capital allocation and governance safeguards. The courts, for their part, have underscored that executive compensation, while a core business matter, must be navigated in a manner consistent with fiduciary responsibilities and shareholder interests. The ongoing conversation around Tesla’s pay structure illustrates how high-stakes compensation disputes can intersect with corporate strategy, investor protections, and the jurisdictions that govern major US public companies.

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