Elon Musk has appealed a court ruling that rescinded his $56 billion pay package from Tesla, arguing that the decision was legally flawed and unfair to both him and the company.
The pay package, which was approved by Tesla shareholders twice in 2018, helped propel the electric vehicle maker to significant growth.
However, in January 2024, Chancellor Kathaleen McCormick of Delaware's Court of Chancery ruled that the compensation was unfair to shareholders, stating that the directors who approved the plan were influenced by Musk and that key information was withheld from investors before the vote.
Musk and Tesla directors argue that the decision ignores important principles of Delaware law, corporate governance, and common sense.
In their appeal, they claim that McCormick wrongly applied a legal standard known as "entire fairness" to assess the pay package, Reuters said.
This standard, they argue, was incorrectly used to suggest that Musk, who owned 21.9% of Tesla's stock at the time, had too much control over the compensation negotiations.
The appeal also asserts that the court wrongly deemed the relationships among Tesla's directors as conflicting, which influenced their decision.
The pay package in question offered Musk options to purchase around 303 million shares of Tesla stock at $23 each, contingent on the company hitting performance and valuation targets.
With Tesla's stock price currently around $230.58, this would have been a highly valuable compensation package.
Despite shareholder approval in 2018 and again in 2024, McCormick's ruling invalidated the deal, citing concerns over shareholder fairness and disclosure issues.
Musk launches appeal to restore $56 billion Tesla payday - Reuters -
— Naveen Sachar (@chefnaveen) March 12, 2025
Stock down 50%, sales down across the board and this a-hole wants a 56 BILLION package while screwing everyone else.
Musk - you should be fired. https://t.co/O1uKKCdwCR
Tesla Faces $25 Billion Cost as Musk Appeals Ruling on Record Pay Package
According to NY Post, Tesla has stated that creating a new compensation plan of similar value could cost the company billion, making the appeal critical for restoring Musk's compensation and ensuring his continued focus on the company.
Musk has also mentioned his desire for a greater stake in Tesla or the possibility of expanding into other product ventures.
His appeal comes at a time when the company's stock has seen a decline, and Musk is involved in other initiatives, such as a government efficiency effort tied to former President Donald Trump.
Musk and his legal team also contend that the lawsuit, brought by Tesla investor Richard Tornetta, was a derivative suit benefiting the company rather than Tornetta personally. They believe the application of the "entire fairness" standard gave shareholders a "license to sue," which could harm the company and its operations.
In response to the ruling, Musk has criticized Delaware's corporate governance system and has urged other companies, including his own Tesla and SpaceX, to consider moving out of the state.
Some companies, such as Meta Platforms and TripAdvisor, have already discussed relocating, citing concerns over the potential impact of future lawsuits and corporate laws in Delaware.
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