Musk wins appeal that restores Tesla’s 2018 pay deal worth about $139 billion

• Delaware Supreme Court Restores Musk’s 2018 Tesla Pay Package.
• Musk’s pay deal is now valued at $139 billion due to the rising stock price.
• Tesla’s new pay plan could reach $878 billion if targets are met.

WILMINGTON: Elon Musk’s 2018 Tesla pay package, once worth $56 billion, was reinstated by the Delaware Supreme Court on Friday, nearly two years after a lower court struck down the compensation deal as “unfathomable.”

The decision reverses a decision that prompted an angry backlash from Musk and damaged Delaware’s business-friendly reputation. It gives Musk greater control over the company, which he has said is his top concern, even after shareholders recently approved a new pay package that could rise to $878 billion if Tesla meets certain targets.

The Supreme Court said a 2024 ruling that voided the pay package was improper and unfair to Musk.

The all-out solution “leaves Musk unpaid for his time and efforts over a six-year period,” the 49-page decision issued Friday said.

The 2018 pay package is now worth about $139 billion based on Tesla’s share price at the close of trading on Friday.

“For Elon, this is a win because he gets control faster,” said Gene Munster, managing partner at Tesla’s Deepwater Asset Management.

If Musk exercises all of the stock options from the 2018 package, his stake in Tesla will increase from about 12.4% to 18.1% of an expanded stock base. The company is issuing shares linked to his new pay package, although he must earn them by hitting performance targets.

Tesla shares rose less than 1% in trading after the decision.

Tesla did not immediately respond to a request for comment. Musk uploaded to X that he was “vindicated.”

The lawyers who challenged the pay package said they were considering their next steps and “were proud to participate in the historic verdict below, holding Tesla’s board of directors and its largest shareholder accountable for breaches of fiduciary duty.”

The pay package was by far the largest until Tesla shareholders approved the new pay plan in November. If Tesla’s appeal had failed, it could have generated a $26 billion profit over two years to account for the replacement stock compensation package promised to Musk — at today’s much higher share price.

The 2018 pay deal gave Musk options to acquire about 304 million Tesla shares at a deeply discounted price if the company hit various milestones, which it did. The options represent about 9% of Tesla’s outstanding stock.

Musk never cashed in on his stock options, because soon after the 2018 stockholder compensation was approved, the board sued Richard Tornetta, an investor with nine Tesla shares.

Not business friendly?

In 2024, after a five-day trial, Delaware Judge Kathaleen McCormick concluded that Tesla’s directors were conflicted and key facts were hidden from shareholders when they voted to approve the plan.

He ordered that the 2018 plan be cancelled.

Musk has accused Delaware judges of being activists hostile to tech founders and urged businesses to follow Tesla and reincorporate elsewhere. Dropbox, Roblox, Trade Desk and Coinbase were among the few big companies that moved their legal homes to Nevada or Texas. However, Delaware remains by far the most popular legal home for US public companies.

Tesla’s board had warned that Musk, the world’s richest man who also heads the SpaceX rocket and artificial intelligence business xAI, could leave the electric car company if he did not get the pay he wanted and increase his voting power.

The Delaware Supreme Court may have been reluctant to strike down Musk’s pay package because shareholders overwhelmingly voted for it, said Brian Dunn, director of the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.

“I think there’s some belief that maybe the courts shouldn’t come between shareholders and the decisions they make,” Dunn said.

Shareholders approved the new pay package in November, and Tesla has taken steps to reduce the risk of a shareholder binding the 2025 package in court.

The Austin-based company is now incorporated in Texas, which allows Tesla to require any investor or group of investors to own 3% of the company’s stock before suing for alleged violations of corporate law. A stake that size would be worth about $30 billion, and Musk is the only person with that much stock.