Judge rules Elon Musk’s ‘unfathomable’ $56bn Tesla pay deal is too much

A judge has said Elon Musk must give up a compensation package worth more than $55bn (£43.4bn) awarded by Tesla’s board of directors, in what was the largest pay package in corporate America.

The ruling in a Delaware court comes five years after a shareholder lawsuit targeted Tesla chief executive Mr Musk and the directors.

Mr Musk reacted to the ruling on X, writing: “Never incorporate your company in the state of Delaware”. He later launched a poll asking if Tesla should change its state of incorporation to Texas.

The judge found the pay deal, which helped to make Mr Musk one of the world’s richest people, was negotiated by directors who appeared beholden to their CEO, and the promise of allowing him to share in the company’s enormous growth.

“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” wrote Kathaleen McCormick of Delaware’s Court of Chancery.

In trial testimony in November 2022, Mr Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.

The judge determined, however, that because Mr Musk was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.

“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” St Jude McCormick wrote in her 201-page decision.

“The process leading to the approval of Mr Musk’s compensation plan was deeply flawed,” she said.

“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.

Greg Varallo, an attorney for the Tesla shareholder Richard Tornetta who brought the lawsuit in 2018, wrote in an email after Tuesday’s decision: “Good day for the good guys.”

The ruling can be appealed to the Delaware Supreme Court.