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A Delaware judge rejected Tesla’s attempt to revive a $56 billion pay package for Elon Musk, saying that once again overwhelming shareholder approval was not enough to overturn its previous rejection of the package.
Monday’s decision is a sharp criticism of the world’s most valuable carmaker Muskits CEO, the richest man in the world who has been on a high since Donald Trump was elected for a second term as US president a month ago.
Judge Kathaleen McCormick concluded that Tesla the unprecedented effort to push through the 2018 pay package for a second time, four months after she first overturned it, was “creative”. But the board “had no procedural basis to reverse the outcome of an adverse post-trial decision based on the evidence it created after the trial,” she wrote Monday.
The Delaware Court of Chancery decision represents an expected appeal to the state Supreme Court, which will decide how much weight Tesla shareholders’ decision to reauthorize him carries at a time when Musk’s social and political power is at its peak.
Musk won Trump’s ear after spending more than $100 million on his political campaign. In return, Musk gained influence over key Cabinet appointments and was placed in charge of an advisory body that promised dramatic cuts to the federal budget.
Musk’s pay package of just over 300 million Tesla shares was directly tied to the company’s performance, requiring it to hit a series of ambitious stock price and operating targets to unlock the award. He does not receive a salary from the car manufacturer.
Tesla shares are up 44 percent this year, mostly after Trump’s Nov. 5 election victory. That means Musk’s stock options have jumped in value from $56 billion when they were canceled in January to more than $100 billion today, helping to push his total wealth to $343 billion when his holdings in SpaceX, social media platform X are included. and xAI.
If ultimately approved, the package would increase his ownership of Tesla from just under 13 percent to more than 20 percent. Musk has previously said that unless his control of Tesla increases, his attention will shift elsewhere, particularly his efforts to develop artificial intelligence.
McCormick said in her original ruling in February that Tesla’s board, which approved the package six years ago, was too pro-Musk, and that her analysis of the grant — described as “the largest executive compensation in the history of the public markets” — showed that if can justify by no reasonable metric.
After McCormick first shot down Musk’s pay package, Tesla put the original package — with enhanced disclosures — to a shareholder vote in June. It passed with 72 percent support.
But McCormick wrote that if companies were allowed to correct breaches of fiduciary duty after adverse court decisions, “lawsuits would become endless.”
Although Tesla said it tried to resolve the court’s problems with the board’s approval process this year, McCormick wrote Monday that the latest statement sent to shareholders remained “materially false or misleading.” The filings incorrectly said a final shareholder vote would be enough to overturn her February decision, she said.
Musk’s public outburst has cast a harsh light on Delaware’s status as a top destination for legal headquarters of public companies. Since the February ruling, he has loudly appealed to Delaware’s corporate law court and has moved all of his businesses to Nevada or Texas. In June, shareholders also approved a separate plan to reincorporate the company from Delaware, where the vast majority of large US public companies are listed, to Texas, where several other companies under Musk’s control are based.
Last month, Musk published on its social media platform X: “When there are egregiously flawed legal rulings in one state that significantly harm American citizens in all 49 other states, the federal government should take immediate corrective action.”
Tesla’s lawyers did get one concession. McCormick sided with them in finding the “staggering” $5.6 billion in Tesla stock sought by law firm Bernstein Litowitz, which represented the Tesla shareholder who brought the lawsuit, too much. Instead, they received $345 million in royalties.
While acknowledging that “their methodology for calculating (the figure) is sound,” McCormick concluded, “In the case of excessive compensation, it was a bold request.”
The lower of $345 million, payable in cash or Tesla stock, was calculated by estimating that the value returned to shareholders was closer to $2.3 billion, indicating the accounting charge it took in 2018.
Bernstein Litowitz said in a statement that it hoped “a well-reasoned decision will end this matter for Tesla shareholders.” The company added that it looks forward to defending the ruling on appeal if necessary.
“None of this is over,” said Ann Lipton, a law professor at Tulane University. “The difficulty for that court is (that) Musk’s not-so-subtle threat to use his new political power to retaliate against Delaware makes it very difficult for that court to rule in his favor without looking like he was spooked.”
