Tesla CEO Elon Musk is headed to the Delaware Supreme Court to defend his absurdly high pay package. The world’s richest man owes a nice chunk of that wealth from his generous pay package from Tesla.
On Wednesday, the Delaware Supreme Court will hear the latest set of arguments in a yearslong legal drama over Musk’s record-setting compensation package.
Musk’s Tesla pay package, announced in 2018, is one of the largest executive compensation deals in history, valued at around $56 billion. Structured over a 10-year period, it ties Musk’s rewards to ambitious performance milestones, including Tesla reaching a $650 billion market capitalization and hitting significant operational targets.
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The sheer scale of this package far exceeds typical CEO compensation, reflecting Musk’s central role in Tesla’s growth and market influence. Since its announcement, the package has drawn intense scrutiny and sparked debate over executive pay fairness and corporate governance, becoming a landmark case in how large pay deals are structured and overseen.
In 2018, a Tesla shareholder named Richard Tornetta filed a suit against Musk, Tesla and Tesla’s board of directors accusing members of the board of violating their legal obligation, called a fiduciary duty, to act in the best interests of shareholders and the company overall.
This package, approved by Tesla’s board, was structured around ambitious performance milestones, including reaching specific market capitalization and operational goals. At the time, it was the largest executive compensation package ever granted, sparking immediate controversy among shareholders and corporate governance experts.
Critics argued that the package was excessively large, lacked proper shareholder disclosure, and was approved under conditions that suggested conflicts of interest and board bias. The central concern was that Tesla’s board, seen as closely aligned with Musk, had failed to exercise adequate independence in evaluating the package. Shareholders claimed the board’s actions did not meet fiduciary duties and that the pay plan was not properly vetted.
In response, a shareholder lawsuit was filed in the Delaware Court of Chancery, the primary venue for corporate governance disputes in the United States. The lawsuit alleged that Tesla’s board breached its duties by approving the compensation plan without sufficient transparency or independent oversight. It argued that the deal was unfair and harmed shareholders by enabling Musk to receive excessive pay regardless of broader shareholder interests.
The case progressed over several years, with detailed scrutiny of the board’s decision-making process and the pay package’s terms. In January 2024, Chancellor Kathaleen McCormick ruled in favor of the plaintiffs, invalidating the pay package on grounds of board bias and inadequate shareholder disclosure. This decision was significant, marking a rare instance where such a large compensation deal was struck down in court.
Following this ruling, Tesla proposed a new, even more ambitious $1 trillion pay plan, which Musk and shareholders are set to vote on in late 2025. Meanwhile, the legal battle over the original 2018 package has reached the Delaware Supreme Court, which will determine its ultimate fate and potentially set important precedents for corporate governance and executive pay practices.
A ruling against Musk could set a precedent for stricter oversight of future compensation packages, encouraging boards to act more diligently and transparently. Conversely, a decision in Musk’s favor might reinforce current practices, potentially allowing similar large pay deals to continue with less challenge.
Beyond Tesla, this lawsuit serves as a bellwether for how courts and investors view executive pay fairness amid rising public scrutiny of corporate leadership.
