A Delaware judge ruled on Monday that Tesla CEO Elon Musk is not entitled to a $56 billion compensation package, despite a shareholder vote in June to reinstate it.
Chancellor Kathaleen McCormick of the Court of Chancery made this decision, following her January ruling that deemed the pay package excessive and rescinded it. This decision surprised investors and brought uncertainty to Musk’s future at Tesla, the world’s most valuable carmaker.
Tesla stated on X, “The ruling is wrong, and we’re going to appeal,” arguing that the judge overruled a supermajority of shareholders.
Musk and Tesla can appeal the decision to the Delaware Supreme Court as soon as McCormick finalizes the order, potentially later this week. The appeal process could extend over a year.
In court documents, Tesla argued that the judge should acknowledge a subsequent June shareholder vote that supported the compensation package for Musk, who has driven many of the company’s advances, and reinstate his pay.
McCormick stated that Tesla’s board could not simply “reset” to restore Musk’s compensation.
“Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable,” she explained in her 101-page opinion.
She clarified that a ratification vote like Tesla’s should have occurred before the trial and that a company cannot ratify transactions involving a conflicted controller, noting that Musk had controlled the pay negotiations.
She also noted that Tesla made multiple material misstatements in its proxy statement about the vote and stated that the vote could not serve as a “cure-all” to justify reinstating Musk’s pay.
Tesla shares dropped 1.4% in after-hours trading following the ruling.
Gary Black, managing partner of The Future Fund, which holds Tesla stock, expressed on X that he believes the Delaware Supreme Court might be more pragmatic than McCormick.
“I doubt this ruling will be resolved anytime soon, and it will likely be overturned by a more moderate court along the way,” he wrote.
The controversial pay package would award Musk stock options if Tesla met specific performance and valuation targets.
Since the pay package was initially valued at up to $56 billion, Tesla’s shares have risen 42% since November 5, when Donald Trump, endorsed by Musk, won the U.S. presidential election. The package is now worth approximately $101 billion.
In the meantime, Trump has tasked Musk with creating a more efficient government by cutting spending. This role as co-lead of the new Department of Government Efficiency allows Musk to maintain his positions at Tesla and other ventures, like SpaceX, despite being informal.
Musk supported Trump’s election campaign vigorously and has since become a close adviser.
McCormick also ordered Tesla to pay the plaintiff’s attorneys $345 million, significantly less than the $6 billion initially requested but still a record fee in securities litigation, payable in cash or Tesla stock.
“We are pleased with Chancellor McCormick’s ruling, which declined Tesla’s invitation to inject continued uncertainty into court proceedings,” read a statement from Bernstein Litowitz Berger & Grossmann, one of the plaintiff’s law firms.
The firm also stated it is ready to defend the court’s opinion should Musk and Tesla decide to appeal.
After the January ruling, Tesla shareholders sent thousands of letters to the court, arguing that rescinding Musk’s pay could drive him to leave Tesla or focus on other ventures like artificial intelligence.
Retail investors and Musk’s influential followers successfully swayed the June shareholder vote, and many voiced their disagreement with the recent ruling on social media.
“Beyond the pedantic details of legal procedure, the bigger issue here is that the voice of shareholders is being overruled,” Omar Qazi posted on X after the ruling.
“If they can’t consider the vote in this case, hopefully they’ll consider it on appeal,” Qazi said.
McCormick found in January that Musk had improperly influenced the 2018 board’s negotiation process for the pay package. The board had justified the package, stating Musk met all ambitious targets on market value, revenue, and profitability.
Following the January decision, Musk criticized the judge on his social media platform X and suggested that companies should follow Tesla’s lead in relocating from Delaware to Texas, although it remains unclear if any have done so.
The judge described the pay package as the “biggest compensation plan ever—an unfathomable sum,” being 33 times larger than the next largest executive compensation package, which was also Musk’s from 2012.
Musk’s 2018 compensation involved stock grants that represented about 1% of Tesla’s equity each time the company met one of 12 escalating operational and financial targets.
Musk received no guaranteed salary. Tornetta, the plaintiff, argued that shareholders were not fully informed about the achievability of these goals when they voted on the package.
