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A judge in Delaware has rejected Tesla’s attempt to reinstate Elon Musk’s $56 billion payout, saying the re-approval of a supermajority of shareholders was not enough to overturn its previous rejection of the package.
Monday’s decision is a sharp rebuke to the world’s most valuable carmaker muskits chief executive, the richest man in the world, has returned since Donald Trump was elected to a second term as US president a month ago.
Judge Kathleen McCormick came to this conclusion Tesla the unprecedented attempt to push through the 2018 pay package for a second time four months after she first scrapped it was “creative”. But the board had “no procedural basis to change the outcome of an adverse post-trial decision based on the evidence they created after the trial,” she wrote Monday.
Tesla promised to appeal the decision. “This ruling, if not overturned, means that judges and plaintiffs’ attorneys are running Delaware companies, not their rightful owners, the shareholders,” it said. “Absolute corruption,” Musk wrote on X, his social media platform.
The appeal will leave it to the state Supreme Court to decide how much weight Tesla shareholders’ decision to reauthorize the pay package carries at a time when Musk’s social and political power is at its peak.
Musk caught Trump’s attention after spending more than $100 million on his political campaign. In return, Musk influenced key Cabinet appointments and became co-chairman of an advisory body that has pledged to dramatically cut the federal budget.
Musk’s pay package of just over 300 million Tesla shares was directly tied to the company’s performance, and the award required it to meet a number of ambitious stock price and operating performance targets. He does not receive a salary from the car manufacturer.
Tesla shares are up 44 percent this year, largely following Trump’s Nov. 5 election victory. That means the value of Musk’s stock options has soared from $56 billion at the time of the cancellation in January to more than $100 billion today, helping to push his total wealth to $343 billion when his stakes in SpaceX, social media platform X and xAI are included.
The board says awarding Musk a new package of the same size could trigger a $25 billion accounting charge due to Tesla’s much higher valuation, which could be a factor in its promise to appeal.
If he is ultimately satisfied, the package will increase his ownership stake in Tesla from just under 13 percent to more than 20 percent. Musk has previously said that unless his control of Tesla is strengthened, his focus will shift elsewhere, specifically to his efforts to develop artificial intelligence.
McCormick said in her original ruling in February that Tesla’s board of directors, which approved the package six years ago, was too accommodating to Musk, and that her analysis of the grant — described as “the largest executive compensation award in the history of the public markets” — showed. that it cannot be justified by any reasonable metric.
After McCormick first rejected Musk’s pay package, Tesla put the original package — with enhanced disclosure options — to a shareholder vote in June. It passed with 72 percent support.
But McCormick wrote that if companies were allowed to remedy breaches of fiduciary duty after adverse court decisions, “lawsuits would become endless.”
Although Tesla has said it has tried to resolve the lawsuit’s problems with its board approval process this year, McCormick wrote Monday that the latest proxy statement sent to shareholders remained “materially false or misleading.” The documents incorrectly said the latest shareholder vote would be enough to reverse her February decision, she said.
Musk’s public ire has thrown a sharp spotlight on Delaware’s status as a top destination for the legal locations of public companies. After the February ruling, he loudly complained to Delaware’s corporate court and moved all of his companies to Nevada or Texas. In June, Tesla shareholders also approved a plan to reincorporate the company from Delaware, where the vast majority of large US public companies are listed, to Texas.
Last month, Musk placed on its social media platform X: “When one state has egregiously flawed judicial decisions that significantly harm American citizens in all 49 other states, the federal government must take immediate action to remedy the situation.”
Tesla’s lawyers did get one concession. McCormick backed them up, saying the “staggering” $5.6 billion in Tesla stock requested by law firm Bernstein Litowitz, which represented the Tesla shareholder who filed the lawsuit, was too much. Instead, they received $345 million in royalties.
Acknowledging that “their methodology for calculating (this) number is robust,” McCormick concluded, “In the case of overcompensation, this was a bold request.”
The $345 million floor, to be paid in cash or Tesla stock, was calculated based on an estimate that the value returned to shareholders was closer to $2.3 billion, reflecting accounting charges that were taken in 2018 .
Bernstein Litowitz said in a statement that it hoped “a well-reasoned decision will put an end to this case for Tesla shareholders.” The firm added that it would look forward to defending the decision on appeal.
“None of this is over,” said Anne Lipton, a law professor at Tulane University. “The difficulty for this court is that Musk’s not-so-subtle threat to use his new political power to retaliate against Delaware makes it very difficult for this court to rule in his favor without appearing intimidated.”
