On Friday, Delaware’s highest court overturned a 2024 ruling by the Court of Chancery that had voided Musk’s $56 billion, milestone-based pay plan, calling the lower court’s decision to rescind the package an excessively harsh remedy.
The justices said Tesla was never given a proper opportunity to demonstrate what a fair level of compensation for Musk might be, and awarded only $1 in nominal damages to the shareholder who brought the suit.
The decision effectively ends the long-running Tornetta v. Musk case and restores what remains the largest CEO pay package in corporate history. But its implications extend well beyond settling an old dispute.
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At the heart of the ruling is a clear signal from the Delaware Supreme Court that even where flaws exist in a board’s process, courts should be cautious about unwinding compensation agreements that have already been approved by shareholders and executed over time. That principle is now being closely watched in light of Tesla’s latest and far more controversial move: a new compensation framework presented to Musk in 2025 that could, under optimistic scenarios, be worth around $1 trillion.
Background: the 2018 deal and the legal fight
Musk’s original 2018 package was revolutionary. He agreed to take no salary or cash bonus, instead tying his pay entirely to Tesla’s performance across 12 tranches of stock options. Each tranche was linked to aggressive targets for market capitalization, revenue, and profitability. If Tesla failed, Musk earned nothing. If it succeeded, shareholders would benefit alongside him.
Tesla’s explosive growth meant the plan was fully vested, turning the package into a symbol of Silicon Valley excess — and a magnet for legal scrutiny.
Shareholder Richard Tornetta sued, accusing Musk and Tesla’s board of breaching fiduciary duties by approving the deal through what he described as a conflicted and opaque process. In January 2024, Chancellor Kathaleen McCormick sided with Tornetta, ruling that Musk “controlled Tesla,” that the board was insufficiently independent, and that shareholders were not given all material information before voting. She ordered the pay package rescinded outright.
That ruling triggered a fierce backlash. Musk publicly attacked the decision, moved Tesla’s incorporation out of Delaware, and encouraged other companies to follow. Tesla also attempted to ratify the 2018 package through a second shareholder vote in 2024, while appealing the ruling.
The Supreme Court’s reversal
In overturning the Chancery Court, the Delaware Supreme Court did not fully vindicate Tesla’s process, but it rejected rescission as an appropriate solution. The justices said the lower court failed to consider alternative remedies and denied Tesla the chance to argue what compensation would be reasonable, given Musk’s role and Tesla’s performance.
By restoring the pay package, the court reinforced the idea that shareholder-approved compensation, especially when tied to extraordinary corporate outcomes, should not be easily undone after the fact.
A precedent for the $1 trillion question
That reasoning is now central to the debate around Tesla’s newest compensation proposal for Musk.
Earlier this year, Tesla board unveiled a new long-term incentive framework that would again rely heavily on equity awards tied to ambitious valuation and operational milestones. While the exact payout would depend on Tesla’s future performance, analysts estimate that if the company meets its most aggressive targets, the package could ultimately be worth close to $1 trillion — a figure that has stunned even seasoned observers of executive pay.
Critics have already warned that the proposal risks repeating the governance concerns raised in the 2018 case, particularly around board independence and Musk’s outsized influence. Supporters counter that Musk remains inseparable from Tesla’s value proposition and that shareholders should be free to reward him accordingly if he delivers exceptional results.
The Delaware Supreme Court’s ruling strengthens Tesla’s hand. By making clear that rescinding a shareholder-approved pay deal is an extraordinary step, the court has raised the legal threshold for successfully challenging future Musk compensation packages. While any new plan could still face lawsuits, legal experts say plaintiffs may find it harder to persuade courts to nullify such agreements outright, especially if Tesla improves its disclosure and approval processes.
The decision also lands amid a broader rethinking of Delaware’s role in corporate America. Tesla’s legal battle coincided with legislative changes to Delaware corporate law earlier this year, changes that were supported by firms representing major companies and aimed at reducing litigation risk for boards and executives.