Musk Makes an Appeal to Recover Tesla’s $56 Billion Payday

On Tuesday, Elon Musk launched his appeal to reinstate his $56 billion Tesla payout, arguing that a lower court judge made many legal mistakes in rescinding the record settlement.

The 2018 compensation package resulted in phenomenal growth for the electric car firm. Still, Musk said that the lower Court of Chancery ruled that it was unjust to shareholders, who voted twice to approve the plan.

That unexpected outcome contradicts established principles of Delaware law, solid corporate governance, and common sense, according to Musk’s opening appeal brief and the current and former Tesla directors who are defendants in the lawsuit.

In January 2024, Chancellor Kathleen McCormick canceled the stock options pay package, calling it “unfathomable.” She said it was unfair to Tesla shareholders since the board who authorized it was beholden to Musk, and Tesla suppressed critical information from investors before voting to approve it.

Tesla received shareholder approval for the pay package for the second time in June, but the court dismissed this as a reason to reverse her decision.

The remuneration package included options for Musk to acquire around 303 million Tesla shares at $23 apiece if the business met performance and value targets. Tesla’s shares closed Tuesday at $230.58.

Tesla has stated that developing a new pay plan of comparable value might cost a $25 billion charge, appealing a critical avenue for restoring Musk’s remuneration and retaining his focus on Tesla.

Musk stated that he wanted more extensive ownership of Tesla and that he could create goods outside the firm. The pitch comes as he devotes time to President Donald Trump’s government efficiency initiative, DOGE, which has provoked protests at Tesla stores. 

In their appeal brief, Musk and the other defendants said McCormick incorrectly assessed the pay package using a strict legal threshold known as complete fairness.

According to the brief, she arrived at that criterion after discovering Musk, who held 21.9% of the shares when the board authorized the compensation deal, had authority over the pay talks. Furthermore, according to the brief, she incorrectly concluded that routine commercial contacts among directors constituted them conflicted, and she incorrectly criticized Tesla’s disclosures before the 2018 shareholder vote.

According to the brief, applying the fairness requirement was equivalent to handing Tesla stockholders a “license to sue.” Richard Tornetta, a Tesla investor with nine shares when he launched the complaint in 2018, was the plaintiff. In what is known as derivative litigation, Tesla wins over Tornetta.

Musk slammed the compensation decision and urged other firms to follow Tesla and SpaceX’s lead and reorganize outside of Delaware. A few companies have either left or threatened to leave the state, including Meta Platforms, TripAdvisor, and Trump’s media empire.

Fears that a trickle of enterprises would develop into a rush, known as “Dixit,” have caused the state government to explore altering its corporate code to protect better controlling shareholders from litigation.