Judge Rules Against Elon Musk’s $56 Billion Tesla Pay Package in Landmark Case

Elon Musk’s unprecedented $56 billion compensation package as Tesla’s CEO will not be reinstated, a Delaware court has ruled, concluding months of contentious legal battles.

Despite approval by Tesla shareholders and directors earlier this year, the court upheld a previous decision that found the award to be excessive and influenced by Elon Musk’s dominance over the board.

Judge Kathaleen McCormick reaffirmed her January judgment, asserting that Tesla’s board members had been unduly swayed by Musk during the approval process for the 2018 pay deal. Calling the package the largest ever proposed for a public company executive, McCormick ruled that Tesla failed to demonstrate its fairness.

“Even if a stockholder vote could have a ratifying effect, it could not do so here,” McCormick wrote in her opinion. She criticized Tesla’s legal team for presenting what she described as “creative” but ultimately unpersuasive arguments to justify the package.

Elon Musk and Tesla React

Reacting to the decision, Elon Musk took to X, formerly Twitter, to express his frustration, stating, “[S]hareholders should control company votes, not judges.”

Tesla also criticized the ruling and announced plans to appeal. “This decision is wrong,” the company said in a post on X. “If not overturned, this ruling means that judges and plaintiffs’ lawyers, not shareholders, will control Delaware companies.”

The case underscores broader concerns about corporate governance and conflicts of interest. Critics argue the pay package reflected a lack of independence on Tesla’s board, with Musk wielding disproportionate influence.

Charles Elson, a governance expert from the University of Delaware, praised the ruling as a reinforcement of Delaware’s strict conflict-of-interest laws.

“You had a board that wasn’t independent, a process dominated by the chief executive, and a package far beyond reasonable bounds,” Elson commented. He warned that a ruling in favor of Musk could have weakened investor protections across the state.

While the judge denied the Tesla shareholder who brought the case the $5.6 billion in Tesla shares they requested, she awarded them $345 million in legal fees. The decision has sparked speculation that Tesla might attempt to propose a similar pay package in Texas, where the company relocated its legal headquarters earlier this year.

Observers believe the case could set a precedent for how executive compensation is scrutinized in public companies, particularly in cases where conflict of interest is alleged. For now, the ruling serves as a cautionary tale about the need for strong governance mechanisms and the limits of shareholder approval in safeguarding corporate interests.