Judge Cancels Elon Musk’s Multi-Billion-Dollar Pay Package That Made Him One of the World's Richest

A Delaware state court judge has voided Tesla CEO Elon Musk’s 2018 multibillion performance-based pay package that helped Musk become one of the richest people in the world. The 303 million split-adjusted stock options received as part of the package by Musk are currently worth $51 billion as per Tuesday’s closing price, CNN reported. The case was argued in Delaware where Tesla is incorporated.

If upheld on an appeal to the Delaware Supreme Court, the judge's decision to void Musk's options pay package may drop his stake in Tesla from 22% to 13%. This will potentially make him lose the title of the World’s Richest Man.

Meanwhile, Forbes has already cut the billionaire’s estimated net worth down to $182.6 billion, and he now trails behind Bernard Arnault ($210 Billion) of the luxury Conglomerate LVMH in the Real Time Billionaire’s List.

What is the case against Musk?

Five years ago, Tesla shareholder Richard Tornetta filed a lawsuit accusing Musk of improperly dictating the negotiation of his pay package and alleged that the board acted without independence, as per a report from The Guardian.

In 2018, Musk’s pay package was approved by the board with 73% of the votes cast. CNN reported that Delaware Chancery Court Chancellor Kathaleen McCormick, who oversaw the bench trial in 2022, ruled Tuesday that Musk and the Tesla board failed to prove that the package was necessary to retain Musk and, thus, the pay package was essentially voided.

The court further directed Tornetta to work with Musk’s legal team to confer on a final form of order implementing the judge’s decision. However, the ruling can be appealed to the Delaware Supreme Court by Musk and his team.

Arguments for and against Musk’s hefty pay package

In the weeklong trial, the Tesla directors argued that the company was paying one of the world’s most dynamic entrepreneurs to ensure that he continued to dedicate his attention to the electric vehicle maker. In the CNN report, Antonio Gracias, a Tesla director from 2007 to 2021, called the package “a great deal for shareholders” as it led to the company’s extraordinary success.

On the other hand, the Delaware judge said the defense was unable to establish that the compensation plan was necessary to keep Musk dedicated to Tesla. “Swept up by the rhetoric of ‘all upside,’ or perhaps starry-eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” Judge Kathleen St J McCormick wrote in her decision.

Gracias’ team also argued the board had a duty to offer Musk a smaller pay package or look for another CEO or they should have required Musk to work full-time at Tesla instead of letting him focus on other projects like Twitter (Now X), SpaceX, Neuralink and the Boring Company.

Musk’s response

Musk did not give an immediate reaction to the judgment, but he did share a post on X saying that entrepreneurs should never incorporate their companies in Delaware. He continued to voice his opinion on Delaware’s policies by recommending people incorporate corporations in Nevada or Texas. He continued his rant by sharing an article with the title, “Delaware is Trying Hard To Drive away Corporations."

He even shared a poll on X asking people if Tesla should change its state of incorporation to Texas where the company’s headquarters is located.

What’s next?

While Judge Kathaleen McCormick has directed for order to implement the decision, there are ways in which Musk’s team can circumvent this. Apart from appealing in the Delaware Supreme Court, Tesla can simply grant Musk another pay package that is more legally secure and designed to withstand legal scrutiny.