Tesla CEO Elon Musk’s pay lawsuit hits Delaware Supreme Court : NPR

The Delaware Supreme Court heard the latest set of arguments Wednesday in the years-long legal drama over Tesla CEO Elon Musk's record-breaking compensation package.

A wage package worth tens of billions of dollars was published back in 2018. It did not give Musk a salary, but instead promised him that the better the company performed, the more and more shares of Tesla. Goals set for top awards that called for Tesla's value to rise ten times — at the time seemed somewhere between daring and completely impossible. Then, the board of directors informed shareholders Musk could get $55.8 billion if he hits all the targets.

The company grew incredibly quickly and Tesla says that Musk would unlock the full stake in 2022.

The exact cost of the payment package depends on when and how you pay; Tesla's stock price is volatile. But as of mid-October 2025, when Tesla shares are trading at $429.24, the pay package could hypothetically be worth more than $100 billion. Even if Musk realizes only a fraction of that value, it's still the largest salary ever offered to a public company CEO.

Or at least that's it would will be if Musk really gets it. Today, a long-running lawsuit over the compensation package returned to court.

What is the basis of the claim?

In 2018, a Tesla shareholder named Richard Tornetta filed a lawsuit against Musk, Tesla and Tesla's board of directors, accusing board members of violating their legal obligation, called fiduciary duty, to act in the best interests of shareholders and the company as a whole. Tornetta argued that Musk had too much influence over the board of directors and, in turn, over how much money he could make. (Musk's brother, who sits on the board, declined to make the salary decision, but several other board members are close friends of Musk.)

The lawsuit also alleged that shareholders were not properly informed when they voted to approve the compensation package because they were unaware of the board members' personal ties to Musk and the degree of influence Musk had over the payout proposal.

Tornetta filed the lawsuit in the Delaware Chancery Court, which hears disputes within businesses. At that time, Tesla was registered in Delaware, like most large US corporations.

In court, Tesla's lawyers repeatedly emphasized that shareholders voted for the pay package, while fully disclosing the eye-popping financial terms of the deal.

The board also emphasized that pay is performance-based. According to them, Tesla shares performed unusually well under Musk, which is why Musk earned his extraordinary salary.

“Against all odds, and despite many betting against him, Musk increased Tesla's value by approximately 1,400%, with shareholders retaining more than 90% of that explosive growth,” Tesla lawyers wrote in one court filing. They argued that this was a direct result of the salary package, which only rewarded Musk if the company achieved such ambitious growth.

Some Tesla shareholders filed reports supporting Tesla's position, arguing that they felt fully informed when they voted on the pay package.

What did the lower court decide?

The Delaware Court of Chancery ruled in Tornetta's favor. The “unfathomable sum” Musk received was excessive, Judge Kathleen McCormick found, and ordered Tesla to work out a new compensation package to replace it.

Instead, Tesla put the exact same compensation package up for a second shareholder vote in 2024. went through it again. McCormick rejected What vote toostating that putting the same plan up for another vote is not the same as developing a new plan.

In March of this year, Musk and the board of directors appealed her decision to the Delaware Supreme Court.

What are the key issues facing the court now?

A panel of judges will now weigh whether the payout package was an extraordinary move, reflecting undue influence or ill-informed shareholders, or whether it was a well-made business decision. If it is the latter, courts will generally defer to corporate boards of directors and shareholders.

If the package is paid did deserve special attention, judges may evaluate whether it was exorbitant because it was grossly disproportionate to the earnings of other CEOs, or whether it was fair, perhaps because an unusually high salary was tied to unusually ambitious goals.

And they may wonder whether Tesla's second vote in 2024 will make up for anything wrong that may have happened in 2018.

What did both sides argue in court today?

A lawyer for board members argued that Musk may have influenced the board of directors, but did not do so. control and that taking away the award was unfair because the work Musk has done over the years and the profits generated by shareholders cannot be similarly taken away.

Meanwhile, Tesla's lawyer focused on the 2024 shareholder vote, arguing that no one can say investors didn't know what they were voting on. What time. “They had the benefit of great hindsight,” Jeff Wall said. “It is impossible to imagine what else they could have known, and in the face of this complete information they took a free and fair vote on what they believed their own interests to be.”

Tornetta's lawyer, meanwhile, defended the Chancery Court's decision to overturn the salary package as “based on a careful determination of the facts and the application of established law to those facts.”

Both parties to the case act on behalf of the shareholders. On the one hand, Tornetta's lawyers argued that too cozy a relationship between the CEO and the board would lead to overpayment of the executive, which would harm the interests of investors. On the other hand, Tesla's lawyers argued that the court should respect shareholders by favoring their the view of their best interests expressed in their votes.

What's the current situation with Elon Musk's salary?

Even without a 2018 pay package, Musk's large stake in Tesla allowed him to personally benefit from Tesla's soaring stock price. He currently owns about 13% of the electric vehicle company and recently bought another billion dollars worth of shares.

This summer, Tesla's board of directors voted to give Musk $29 billion more shares as a “bridge” compensation package. That is clearly designed as an alternative to the much larger stake that is at the center of this legal battle: Musk will receive either the 2018 stake if it is fully restored, or this “interim” stake, but not both.

Meanwhile, Tesla's board of directors has offered Musk a new future compensation package that, if fully implemented, could make him world's first trillionaire. (To put this amazing opportunity into perspective: if you made a dollar every second, you would become a millionaire in less than 12 days, a billionaire in about 32 years, and a trillionaire in 32,000 years.)

Like the 2018 package, this one consists solely of stock options and is tied to the achievement of certain goals. This time, the goals include the number of subscribers for the company's “Full Self-Driving (Supervised)” software, the number of robotaxis operating and the company's financial performance. Reuters recently analyzed the package and found that Musk could earn billions of dollars even without achieving major goals such as creating a fully self-driving Tesla.

Shareholders will be able to vote on this new compensation package at the annual meeting on November 6.

What were the consequences of this lawsuit?

Delaware's business-friendly corporate laws make it popular among large companies; more than two-thirds of Fortune 500 companies are registered in this small state.

Immediately after the first decision that canceled his compensation package, Musk began posting on social networks O transfer of Tesla registration to Texas. Tesla's legal home has changed since the June 2024 shareholder vote. from Delaware to Texas The company previously moved its headquarters there. from California.

The phenomenon of companies moving their legal home out of Delaware has become common enough to earn its own acronym: “Dexit.”

“There have been a number of decisions made in the Delaware Court of Chancery that have begun to shake the faith of the corporate people incorporated there in Delaware,” Beth Is Boland, a partner at Foley and Lardner, said in a recent report. webinars. Tornetta case was not the only controversial decision This applies to corporate leaders, she said, but this was a high-profile example.

The Delaware Legislature, alarmed by the Brexit trend, passed new laws to protect its business reputation. earlier this year this will make it more difficult to file lawsuits like Tornetta's.

Spotlight on Delaware notesThe Delaware Supreme Court will hear a challenge to the law's constitutionality on November 5, just weeks after hearing arguments in the compensation case that prompted its passage.