Elon Musk’s $56B Tesla (TSLA) Pay Lawsuit Enters Final Stage in Delaware Court
Elon Musk, CEO of Tesla, is actually not the founding Chief Executive Officer. Musk joined the company in early 2004, after one year of its creation. As Marc Tarpenning, one of the founders, confirmed in an interview with CNBC News, “Elon is not a founder of Tesla. He joined after we had incorporated the company and started building the car.” The company is named after Nikola Tesla, who was the inventor.
In 2018, the company offered Elon Musk a $56 billion performance-based pay package. This was the highest package offered to anyone in corporate history. The offer was decided after accomplishing the mission of “Musk would earn stock options, not cash, if Tesla hit over 10 years 12 market cap and operational milestones.” The company set the limits with no salary or bonus, only a reward. However, Musk surprised everyone in 2022 by successfully achieving all the targets. By making the 22% owner of Tesla at that time, a deal was signed between the shareholders and the board of directors.
Why the Lawsuit Happened
According to Tesla’s SEC filing, “The 2018 CEO Performance Award is an ambitious plan that ties Elon’s compensation to the company’s performance and market cap growth.”
Although the deal was done and Musk received what he struggled for and deserved, in 2020, one of the shareholders, Richard Tornetta, sued both Musk and the Tesla board. He claimed that the deal was unfair and was approved improperly.
His allegations included that the Tesla board was very close to Musk. He objected that no shareholder was given complete information before voting. He also claimed that Musk had a conflict of interest. He also accused Musk of dominating the board’s decision-making.
Kathaleen McCormick, a judge from Delaware Chancery Court, supported the argument claimed by shareholder Tornetta. In 2024, Shae voided the $56 billion package, calling it “unfathomable” and “deeply flawed.”
She also stated that shareholders were not fully informed and there was a lack of independence throughout the board process. McCormick wrote that “The process leading to the approval of Musk’s compensation plan was deeply flawed. The directors were beholden to Musk, and the shareholder vote was not fully informed.” Both Musk and Tesla filed an immediate appeal in Delaware’s Supreme Court.
Current Position
The case has now reached its final stage in the Delaware Supreme Court. Tesla argues that the deal was performance-based and made based on complete transparency. They also claim that all the shareholders have in-depth knowledge of everything that has happened and approved knowingly.
Tesla’s attorney statement to the Delaware Supreme Court was “The package was performance-based, transparent, and approved by informed shareholders.” They stated that soaring past $1 trillion in the Tesla market, Musk proved to deliver unmatchable value to the company. They further argue that the lower court ignored the shareholders’ intent, knowledge, and expertise. Further, the court also misinterpreted the corporate law.
Now there are two probabilities. Either Musk will lose the case, or he will benefit in both cases. If the Supreme Court reverses the ruling, Musk’s package will be reinstated. However, if the verdict is upheld, Musk keeps his existing Tesla shares but will lose the bonus. Still, it’s worth tens of billions.
