Delaware Judge rejects Musk's USD 56 billion Tesla pay package again

Despite a vote by Tesla shareholders in June to reinstate his USD 56 billion compensation package, a Delaware court gave Tesla CEO Elon Musk another defeat Thursday, again ruling against the award of the payment to him. Chancellor Kathaleen McCormick of the Delaware Court of Chancery on Monday upheld her earlier ruling in January that the package was excessive and improperly approved.

The ruling gives investors more doubts about how long Musk, the world's most valuable carmaker, will be at the helm of Tesla. Musk criticised the decision, which was made in a post on X where he flatly wrote, “Shareholders should control company votes, not judges.” Tesla followed suit, saying the ruling was 'wrong' and the company would appeal to the Delaware Supreme Court, which may be earlier than this, 'as soon as an order is entered.'

The argument pivotally revolves around a 2018 compensation package that gave Musk stock options, worth billions, that would essentially pay him handsomely — if Tesla could hit a series of aggressive performance and valuation targets in less than four years. The package was once worth USD 56 billion, but has grown to about USD 101 billion based on Tesla stock soaring in the wake of the November 2020 U.S. presidential election.

In the case, McCormick ordered that the subsequent shareholder vote by Tesla to reinstate the package doesn't mean the original decision is overturned, saying that Tesla's proxy statements about the vote were 'material misstatements.' In allowing parties to change judgments by making up new facts, she said that lawsuits would become endless.

Musk’s leadership is important to Tesla, the company argues, as he is responsible for spearheading vital innovations. But critics insist that Musk was overly involved in the compensation negotiations.

The rejection has caused Tesla’s after-hours stock trading to drop 1.4 percent. A Tesla investor, Gary Black, managing partner of The Future Fund, expected an appeal, saying the Delaware Supreme Court might take a more pragmatic approach.

This ruling comes as Musk juggles his leadership roles at Tesla, SpaceX, and other ventures, alongside a new advisory role under President-elect Donald Trump. Tasked with co-leading a Department of Government Efficiency to slash federal spending, Musk’s role is informal, allowing him to retain his corporate positions.

The legal battle over Musk’s compensation is expected to continue for months, potentially reshaping governance and executive pay at Tesla.