The Delaware Court of Chancery struck down Elon Musk’s 2018 Tesla pay award in January 2024 after finding that Tesla’s directors had not proved the deal entirely fair. Tesla shareholders later voted to ratify it, but that vote did not itself erase the court’s judgment. The Delaware Supreme Court subsequently reversed the rescission, reinstated the plan and awarded the shareholder plaintiff nominal damages.
What did the judge decide about Musk’s 2018 pay package?
In Tornetta v. Musk, a Tesla stockholder challenged the board’s 2018 performance award to Musk. After a five-day trial, Chancellor Kathaleen McCormick concluded that the director defendants had not proved the award entirely fair to Tesla and its stockholders. Her January 30, 2024 post-trial opinion ordered the award rescinded.
The package consisted of 12 option tranches tied to Tesla market-capitalization and operational milestones. Musk could earn the options only if Tesla reached the specified targets. The defense presented it as a way to reward him for substantial company growth; the court examined that claim against the way the award was developed, its price and whether Tesla needed such a package to retain him.
Why did the court find the board’s process and award inadequate?
The court examined substance, not just the number of meetings
The opinion scrutinized how the award was negotiated, Musk’s influence over its timing and terms, and the directors’ relationship with him. The court did not treat a lengthy process or a series of meetings as proof that the package had been negotiated fairly. McCormick wrote: “The defendants’ statistics, however, elide the lack of substantive work. Time spent only matters when well spent.”
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The court tested the claimed trade-off against Musk’s existing stake
The defendants described the award as “6% for $600 billion of growth in stockholder value.” That was their characterization of the proposed exchange, not an independent measure of the award’s realized value. The court considered Musk’s existing ownership and the case record, including whether the award caused the growth attributed to it.
The board did not establish that the package was needed to retain him
Whether Tesla needed the award to keep Musk was part of the court’s review of its fairness. The defendants did not establish that this exceptionally large package was necessary for retention. The judgment therefore concerned both the board’s work and the substance of the compensation—not simply whether Tesla later performed well.
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What happened after the January 2024 ruling?
At its June 13, 2024 annual meeting, Tesla asked stockholders to ratify the award that the Chancery Court had ordered rescinded. This was a second vote on the package, not the original 2018 approval. Tesla also asked stockholders to approve moving its incorporation from Delaware to Texas; Tesla’s 2025 proxy statement says the company became a Texas corporation in June 2024.
Tesla later reported that 72% of disinterested voting shares supported ratification. That figure comes from Tesla’s Form 10-Q for the quarter ended June 30, 2025. It is distinct from the approximately 84% of non-Musk and non-Kimbal shares represented and entitled to vote that Tesla reported supported Texas redomestication in its 2025 proxy statement. The two percentages refer to different proposals and different stated voting bases.
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Tesla’s 2024 proxy argued that ratification could avert a potential accounting charge of more than $25 billion. The Chancery Court’s December 2, 2024 opinion recounts that rationale; it was a claimed potential consequence, not a charge shown to have been incurred.
Did the shareholder vote overturn the judge’s ruling?
No. The vote did not, by itself, vacate the judgment. On December 2, 2024, the Chancery Court declined to revise its post-trial opinion, concluding that the later vote did not provide a basis under the procedural rules Tesla invoked to reopen the adjudicated case. The court also addressed whether the vote and its disclosures met the relevant legal safeguards. Tesla disputed the court’s conclusions in its proxy filings; those arguments were the company’s position, not the court’s holding.
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What did the Delaware Supreme Court decide?
The later appeal changed the result. The Delaware Supreme Court reversed the rescission, reinstated the 2018 plan and awarded the plaintiff nominal damages. The Supreme Court’s disposition was: “We reinstate the 2018 plan and award the Plaintiff nominal damages.” That is the current outcome of the appeal; it is separate from the Chancery Court’s 2024 trial judgment and its December ruling on Tesla’s post-judgment ratification effort.
| Stage | What happened | Effect |
|---|---|---|
| January 30, 2024: Chancery Court post-trial opinion | After a five-day trial, the court found the defendants had not proved the award entirely fair. | Ordered rescission of the 2018 award. |
| December 2, 2024: post-judgment ruling | The court declined to revise its opinion based on the later shareholder vote. | The trial court did not reopen the case on the basis Tesla argued. |
| Later Delaware Supreme Court decision | The Supreme Court reversed rescission and addressed the appellate issues. | Reinstated the 2018 plan and awarded nominal damages to the plaintiff. |
The central question in the trial opinion was whether Tesla’s directors had shown that the compensation process and award were fair—not whether a later majority of shareholders preferred the package. The appeal ultimately changed the remedy, so the Chancery Court’s 2024 reasoning remains important to understanding the dispute, but rescission is not the final result.
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