The courtroom battle over Elon Musk’s record-breaking $56 billion Tesla pay package has reached its climax at the Delaware Supreme Court, where Tesla is urging the justices to overturn a lower court decision that voided the deal earlier this year.
During the hearing in Dover, Tesla’s attorney Jeffrey Wall argued that Musk’s compensation plan was properly approved by shareholders, both in 2018 and again in a reaffirming vote last year. Wall told the court that the 2024 vote was “the most informed stockholder vote in Delaware history,” adding that shareholders “knew exactly what they were voting for.” Tesla contends that the lower court erred in its interpretation of the facts and the law when it rescinded the plan in January 2024. The company insists that Musk did not dominate the board’s pay negotiations, that shareholders were fully informed, and that rescinding the pay ignored the immense value Tesla and its investors gained under his leadership.
The original ruling, delivered by Chancellor Kathaleen McCormick of the Delaware Court of Chancery, found that Tesla’s board lacked independence from Musk and that shareholders had been deprived of key details about the 2018 package. McCormick deemed the pay deal unfair and ordered it rescinded, sparking an uproar among corporate leaders who saw the decision as evidence of Delaware’s growing hostility toward powerful entrepreneurs. The ruling helped fuel a trend dubbed “Dexit,” in which companies including Tesla, Dropbox, and venture capital giant Andreessen Horowitz moved their legal incorporation from Delaware to states such as Texas and Nevada, where corporate laws are considered more favorable to directors and executives.
Representing the plaintiff, Richard Tornetta—a small investor who held just nine Tesla shares when he filed the lawsuit in 2018—attorney Greg Varallo urged the Supreme Court to uphold the lower court’s findings. He argued that allowing a shareholder vote to retroactively fix an illegal deal would undermine the entire legal process. “If the court accepted ratification,” Varallo warned, “lawsuits would be interminable.” He described the case as extraordinary not because of its legal novelty, but because it concerned “the largest pay package in human history, awarded to the richest man on earth.”
The controversy has already forced Delaware lawmakers to revisit the state’s corporate statutes in an effort to stem further corporate departures. Tesla, now incorporated in Texas, faces a more favorable legal environment where shareholder challenges are significantly harder to mount. Even if the company loses its appeal, Musk will still receive tens of billions of dollars under a replacement compensation plan approved in August, which Tesla estimates will cost at least $25 billion in accounting charges. The company has said the new plan aims to retain Musk and keep him focused on Tesla’s next frontier—robotics and autonomous driving.
Tesla’s 2018 compensation plan was originally valued at $56 billion if the company hit ambitious performance milestones, which it did. As the stock has continued to climb, those options are now worth about $120 billion, making it the largest executive pay deal ever awarded. Musk, who remains the world’s richest person with an estimated $480 billion fortune according to Forbes, has continued to influence Tesla’s direction even as the company faces slowing electric vehicle demand and tougher competition from Chinese automakers.
Adding to the high stakes, the Delaware justices are also weighing whether to uphold a $345 million legal fee awarded to Tornetta’s attorneys for their role in challenging the plan. A decision could take several months, but whatever the outcome, it will have sweeping implications for how corporate boards operate, how shareholder votes are interpreted, and whether Delaware can maintain its long-held dominance as the home of U.S. corporate law.
