The Delaware Supreme Court in the United States ruled on Friday (December 19) to reinstate Elon Musk’s 2018 Tesla compensation plan. The plan, which was once valued at $56 billion, is now estimated to be worth around $139 billion to $150 billion, effectively putting an end to years of ongoing litigation.
The Delaware Supreme Court overturned a lower court’s decision in 2024 to cancel the compensation plan, deeming that a complete rescission would leave Musk’s efforts and time spent over six years uncompensated.
According to reports from the Financial Times on Friday, the court opinion noted that while there were shortcomings in the plan to grant Musk hundreds of millions of shares of Tesla stock approved by the board in 2018, a full revocation of the plan was deemed not an appropriate remedy. The plan required Tesla to achieve various operational and financial milestones under Musk’s leadership before he could receive compensation.
The court emphasized that Musk fully complied with the agreement, and Tesla’s market value surged during the period from 2018 to 2024, exceeding $1 trillion, benefiting shareholders.
In early 2024, Judge Kathaleen McCormick of the lower-level Delaware Court of Chancery ruled that the process approving Musk’s compensation plan had flaws, as the board had close personal and professional relationships with Musk, who led the development of the compensation plan.
She described Musk as a typical “superstar CEO.” Despite shareholders approving the compensation plan with over 70% support in June 2024, McCormick still ruled in December 2024 that the second vote results could not overturn her earlier decision.
The Delaware Supreme Court felt that canceling Musk’s compensation plan and awarding the plaintiff, shareholder Richard Tornetta, a symbolic compensation of $1 was overly extreme.
When Tornetta filed the lawsuit in 2018, he only held 9 shares of Tesla stock. The court awarded the lawyers representing the plaintiff $54.5 million in fees.
The reinstated compensation plan involves approximately 303 million shares of stock. The court confirmed that the board had breached its duty, and the indisputable fact that shareholders had benefited from Musk’s hard work.
In November, Tesla shareholders approved a new compensation plan at a meeting in Austin, Texas, which could have a value of up to $1 trillion if all thresholds are met. The plan requires Musk to achieve goals such as product development and company valuation increasing to $8.5 trillion. The Tesla board has stated that if the Supreme Court reinstates the 2018 plan, the new compensation plan will be withdrawn.
Following the initial court ruling, Delaware, which serves as the registration location for the vast majority of major U.S. publicly traded companies, has tightened its corporate laws, making it more difficult for shareholders to bring similar lawsuits.
Tesla has since moved its registration location to Texas. Additionally, several major tech companies, including Dropbox and Coinbase, have subsequently relocated to Texas or Nevada.