chancery court

Delaware Supreme Court Reinstates Elon Musk Pay Package, Reversing Chancery Court Ruling

Staff WriterBusiness, Government, Headlines

chancery court

Legal observers believe that the ruling reflects a recognition by the state’s highest court that the Chancery Court’s approach was overreaching.

Supreme Court Decision seen as rebuke of judicial overreach, restores shareholder-approved compensation

WILMINGTON, Del. — The Delaware Supreme Court on Dec. 19 unanimously reversed a lower-court ruling that had voided Elon Musk’s landmark compensation package at Tesla, restoring a shareholder-approved agreement that had been struck down earlier this year by the state’s Court of Chancery.

The high court ruled that the Chancery Court went too far when it rescinded Musk’s 2018 performance-based pay plan, valued at roughly $50 billion at the time and potentially far more today. While acknowledging procedural shortcomings in how the package was approved, the justices said canceling the deal outright was an excessive remedy that disregarded both shareholder intent and the extraordinary value created during the period in question.

The ruling reinstates the compensation package in full, while awarding only nominal damages of $1 and attorney’s fees — a clear signal, legal observers say, that courts should exercise restraint when second-guessing corporate governance decisions ratified by shareholders.

Shareholder Vote Central to Decision

At the heart of the case was whether Musk should be treated as a “controlling stockholder,” a designation that triggers Delaware’s most demanding legal standard, known as “entire fairness” review. The Supreme Court concluded he did not meet that threshold, noting that Musk did not own a majority of Tesla shares and lacked unilateral control over the board.

The court emphasized that Tesla shareholders had overwhelmingly approved the compensation plan, which was tied to aggressive performance milestones that many analysts credit with helping transform Tesla into one of the world’s most valuable automakers.

Legal Community Weighs In

Former Delaware Attorney General Jane Brady said the ruling reflects a recognition by the state’s highest court that the Chancery Court’s approach was overly punitive.

“The Supreme Court recognized that the Chancery Court remedy was too extreme,” Brady said. “The Supreme Court also recognized that further information should have been permitted — information that could have added context and justification for the pay rate that was approved by shareholders.”

Reversal of Chancery Court Remedy

The decision overturns a January ruling by Kathaleen McCormick, who described the package as an “unfathomable sum” and concluded that Tesla’s board had not acted independently enough in approving it. Her ruling wiped out Musk’s compensation entirely, despite Tesla’s dramatic growth during the six-year period covered by the plan.

The Supreme Court disagreed, finding that while the approval process was imperfect, the punishment did not fit the offense. Eliminating all compensation, the justices said, effectively left Musk uncompensated for leading Tesla through a period of historic expansion.

Response From Plaintiffs

Attorneys representing shareholder plaintiff Richard Tornetta had not issued a public comment on the ruling as of publication.

Broader Implications for Delaware

The ruling comes amid growing concern that Delaware’s status as the nation’s corporate capital is facing increased competition. Musk previously announced plans to move Tesla’s incorporation to Texas following the Chancery Court decision, citing concerns about Delaware’s legal climate.

Supporters of the Supreme Court ruling say it restores balance to Delaware corporate law, reinforces respect for shareholder votes, and sends a message that courts will not retroactively undo business agreements simply because their outcomes appear large or controversial.

RELATED STORIES:

Share this Post