Elon Musk, CEO of SpaceX and Tesla, attends the Viva Technology conference at the Porte de Versailles exhibition center in Paris on June 16, 2023.
Gonzalo Fuentes | Reuters
Elon Musk’s 2018 CEO pay package from Tesla, worth some $56 billion when it vested, must be restored, the Delaware Supreme Court ruled Friday.
“We reverse the Court of Chancery’s rescission remedy and award $1 in nominal damages,” the judges wrote in their opinion.
In the decision out Friday, the Delaware Supreme Court judges said a lower court’s decision to cancel Musk’s 2018 pay plan was too extreme a remedy, and the lower court did not give Tesla a chance to say what a fair compensation ought to be.
The decision on the appeal in this case, known as Tornetta v. Musk, likely ends the years-long fight over Musk’s record-setting compensation.
Dorothy Lund, a professor at Columbia Law School, told CNBC that while the Friday opinion may restore the 2018 pay plan for Musk, it leaves the rest of the lower court’s decision unaddressed and in-tact.
“The court had previously decided that Musk was a controlling shareholder of Tesla, and that the Tesla board and he arranged an unfair pay plan for him,” she said. “None of that was reversed in this decision.”
The Delaware Supreme Court issued the order “per curiam” with no single judge taking credit for writing the opinion, and no dissent noted.
Musk’s 2018 CEO pay package from Tesla, comprised of 12 milestone-based tranches of stock, was unprecedented at the time it was proposed. After it was granted, the pay plan made Musk the wealthiest individual in the world.
A shareholder named Richard J. Tornetta sued, filing a derivative action in 2018, accusing Musk and the Tesla board of a breach of their fiduciary duties.
Delaware’s business-specialized Court of Chancery decided in January 2024 that the pay plan was improperly granted and ordered it to be rescinded.
In her decision, Chancellor Kathaleen McCormick also found that Musk “controlled Tesla,” and that the process leading to the board’s approval of his 2018 pay plan was “deeply flawed.”
Among other things, she found the Tesla board did not disclose all the material information they should have to investors before asking them to vote on and approve the plan.
After the earlier Tornetta ruling, Musk moved Tesla’s site of incorporation out of Delaware, bashed McCormick by name in posts on his social network X, formerly Twitter, where he has tens of millions of followers, and called for other entrepreneurs to re-incorporate outside of the state.
Tesla also attempted to “ratify” the 2018 CEO pay plan by holding a second vote with shareholders in 2024.
As CNBC previously reported, a law firm that currently represents Tesla in this appeal penned a bill to overhaul corporate law in Delaware earlier this year.
The bill was passed by the Delaware legislature in March, and if it had applied retroactively, it could have affected the outcome of this case.
Read the Delaware Supreme Court’s ruling here.
This is a developing story. Please check back for updates.
