In a significant decision, a judge in Delaware has nullified the $55.8 billion pay deal granted to Elon Musk by electric car company Tesla in 2018. The legal action was initiated by a shareholder

who argued that the payment was excessive. The court found that Tesla directors, responsible for negotiating the pay package, were potentially influenced by Musk's "superstar appeal" and failed to fully inform shareholders. The judge deemed the deal "unfathomable" and ordered its cancellation.

The pay deal, the largest in US corporate history, contributed to making Elon Musk the world's richest person. Musk's net worth was estimated between $198 billion and $220 billion in November 2023 by Bloomberg and Forbes. The compensation was linked to Tesla's performance targets, such as share price and profitability, with Musk forgoing a salary.

Richard Tornetta, a Tesla shareholder, filed the lawsuit, arguing that Musk was being overpaid. Although Tornetta owned only nine Tesla shares, he contested that shareholders lacked sufficient information about how easily Musk's performance goals could be met.

Following a week-long trial in November 2022, the judge found that the pay award aimed to ensure Musk's continued focus on the company, but she criticized the directors for being influenced by Musk's rhetoric. The judge highlighted Musk's extensive ties with Tesla's compensation committee members and concluded that many directors involved in the process were beholden to Musk or had compromising conflicts.

In response to the ruling, Musk took to social media platform X (formerly Twitter), advising against incorporating companies in Delaware and suggesting Nevada or Texas as alternatives. The judgment prompted Musk to conduct a poll among his followers on whether Tesla should change its state of incorporation to Texas.

Tesla's shares experienced a decline of around 2.5% in extended New York trade following the announcement of the court's decision. The stock has lost over 20% of its value this year. When Tesla initially proposed Musk's 10-year pay package in 2018, it drew public attention and faced opposition from shareholder advisory groups, who deemed it excessively generous. Photo by Vauxford, Wikimedia commons.