Tesla CEO Elon Musk’s salary lawsuit in Delaware Supreme Court: NPR

The Delaware Supreme Court on Wednesday will hear the final arguments in a yearlong legal drama over Tesla CEO Elon Musk’s record compensation.

The amount of wages, worth tens of billions of dollars, was fitted out in 2018. This didn’t give Musk a salary, but instead promised him more and more Tesla stock, as the company improved. Targets set for highest awards – which called for growth in Tesla’s value tenfold – seemed somewhere between daring and completely impossible at the time. At the time, the board of directors told shareholders Musk could earn $55.8 billion if he hits all the targets.

The company grew incredibly quickly and Tesla says that Musk unlocked the full suite of actions in 2022.

The exact value of the salary package depends on when and how you count; Tesla’s stock price is volatile. But by mid-October 2025, with Tesla shares at $429.24, the compensation could hypothetically be worth well over $100 billion. Even if Musk only makes a fraction of that, it’s still the largest salary ever offered to the CEO of a publicly traded company.

Or at least that would be be, if Musk actually receives it. The long-running lawsuit over compensation will return to court today.

What is the basis of the lawsuit?

In 2018, Tesla shareholder Richard Tornetta filed suit against Musk, Tesla, and the Tesla board, accusing board members of violating their legal duty, 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 on the board and, therefore, too much influence on the amount of money he could make. (Musk’s brother, who sits on the board, recused himself from the salary decision, but some other board members are close friends of Musk.)

The lawsuit also argued that shareholders were not adequately informed when they voted in favor of the compensation package because they did not know the board members’ personal ties to Musk or Musk’s influence on the compensation proposal.

Tornetta filed the suit in the Delaware Court of Chancery, which judges corporate disputes. At that time, Tesla was incorporated in Delaware, like the majority of large American companies.

In court, Tesla’s lawyers repeatedly emphasized that shareholders voted in favor of the pay package, with full disclosure of the deal’s eye-popping financial terms.

The board also emphasized that remuneration was linked to performance. Tesla shares did extraordinarily well under Musk, so Musk earned his extraordinary salary, they say.

“Against all odds and with many bets against him, Musk grew Tesla’s value by approximately 1,400%, with shareholders retaining more than 90% of this explosive growth,” Tesla lawyers wrote in a legal filing. It was the direct result of a salary program that only rewarded Musk if the company achieved such ambitious growth, they argued.

Some Tesla shareholders filed briefs supporting Tesla’s position, arguing that they felt fully informed when they voted in favor of the pay package.

What did the lower court decide?

The Delaware Court of Chancery ruled in favor of Tornetta. The “unfathomable sum” paid to Musk was excessive, said Judge Kathaleen McCormick, who ordered Tesla to come up with a new compensation package to replace him.

Instead, Tesla proposed the exact same compensation package for a second shareholder vote in 2024. They I passed it once again. McCormick rejected that vote toosaying that putting the same plan up for a second vote was not the same as developing a new plan.

Last March, Musk and the board appealed his decision to the Delaware State Supreme Court.

What are the key issues currently before the court?

A panel of judges will now determine whether the pay package constitutes an extraordinary decision reflecting undue influence or insufficiently informed shareholders – or a properly conducted business decision. If it is the latter, then generally, courts defer to the boards of directors and shareholders of corporations.

If the salary package did merits further scrutiny, judges can assess whether this salary was exorbitant because it was wildly disproportionate to the pay of other CEOs – or whether it was fair, perhaps because this unusually high salary was tied to unusually ambitious goals.

And they might wonder if Tesla’s second vote in 2024 makes up for something inappropriate that might have happened in 2018.

What is the current status of Elon Musk’s compensation?

Even without the 2018 pay package, Musk’s significant stake in Tesla allowed him to personally profit from the skyrocketing value of Tesla stock. He currently owns around 13% of the electric car maker and recently bought another billion dollars worth of stock.

This summer, Tesla’s board voted to give Musk an additional $29 billion in stock as “interim” compensation. It is explicitly framed as an alternative to the much larger package that is at the heart of this legal battle: Musk will get either the 2018 package, if it is fully reinstated, or this “interim” action package, but not both.

Meanwhile, Tesla’s board has proposed a new compensation package for Musk that, if fully realized, could make him the the world’s first billionaire. (To put this astonishing possibility into perspective: if you earned a dollar every second, you would be a millionaire in less than 12 days, a billionaire in about 32 years, and a trillionaire in 32,000 years.)

Like that of 2018, this consists exclusively of stock options and is linked to the achievement of certain objectives. This time, the targets include the number of subscribers to the company’s “Full Self-Driving (Supervised)” software, the number of robo-taxis in operation and the company’s financial performance. Reuters recently analyzed the package and found that Musk could earn billions of dollars even without achieving headline goals, like delivering a fully driverless Tesla.

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

What were the consequences of this trial?

Delaware’s business-friendly corporate law makes it popular with large companies; more than two-thirds of Fortune 500 companies are incorporated in the small state.

Immediately after the first decision voiding his compensation, Musk began social media post about move Tesla incorporation to Texas. After a shareholder vote in June 2024, Tesla’s legal headquarters has changed from Delaware to Texas The company had previously moved its headquarters there from California.

The phenomenon of companies moving their legal headquarters out of Delaware has become common enough to have its own shorthand: “Dexit.”

“There have been a series of decisions from the Delaware Chancery Court that have begun to shake the confidence of Delaware’s incorporated business community,” Beth IZ Boland, a partner at Foley & Lardner, said in a recent statement. webinars. The Tornetta affair it wasn’t the only controversial decision it concerned business executives, she said, but it was a high-profile example.

The Delaware Legislature, alarmed by the “Dexit” trend, stepped in with new laws intended to protect its pro-business reputation, one of which passed. earlier this year it would make it more difficult to file lawsuits like Tornetta’s.

Like Spotlight Delaware RemarksThe Delaware Supreme Court will hear a challenge to the constitutionality of that law on November 5, just weeks after hearing arguments in the compensation case that inspired it.