Elon Musk's controversial $56 billion compensation package continues to be rejected. A Delaware judge has again struck down the deal, despite Tesla shareholders voting to reinstate it.
The decision has fueled controversy over Musk's relationship with the company's board of directors and the limits of shareholder control.
A rejection that sets a precedent
Delaware Chancery Court Judge Kathaleen McCormick said Tesla cannot “reset” the process to restore Musk’s compensation package. She said allowing such practices would unnecessarily prolong legal proceedings.
McCormick noted that Tesla made false statements in its proxy statement, arguing that a ratification vote like the one in June should have occurred before the trial.
He also stressed that Musk controlled his salary negotiations, invalidating any attempt to justify the subsequent decision.
Tesla's arguments and Musk's response
Tesla defended the need for Musk's compensation package, calling it the primary driver behind the company's progress. The board argued that the billionaire met key valuation, revenue and profitability targets, thus justifying his remuneration.
Following the ruling, Musk reacted on X, his social media platform, saying: "Shareholders should control the votes of companies, not judges."
Tesla, for its part, called the decision erroneous and announced that it will appeal to the Delaware Supreme Court once the judge issues the final order.
A legal battle with financial implications
McCormick's refusal has already had a tangible impact on Tesla. The company's shares fell 1.8% in after-hours trading. However, the real blow may be to investor confidence.
Some analysts, such as Gary Black of The Future Fund, believe the Delaware Supreme Court could take a more pragmatic approach. However, they warn that the appeals process could take more than a year.
Tesla shareholders are concerned about the impact the loss of this compensation package could have on Musk.
Since January, thousands of them have sent letters to the court, arguing that voiding pay increases the risk that Musk will turn his attention to other projects, such as artificial intelligence, at companies other than Tesla.
The situation is complicated by Musk's new informal role in the Trump administration. The former president recently appointed him co-leader of the Department of Government Efficiency.
While the position does not formally interfere with his leadership of Tesla and SpaceX, it could influence his long-term priorities.
What does this compensation package represent?
Musk's 2018 pay package gave him stock grants equal to 1% of Tesla's equity every time he hit one of 12 financial and operational targets. Initially valued at $56 billion, it is now worth $101 billion due to a 42% increase in the stock price since November.
While the board argues that Musk deserved the reward for meeting all the goals, critics say the achievability of the milestones was not adequately communicated to shareholders.
Shareholders divided, but active
As the controversy continues, Musk's supporters and minority shareholders have defended his leadership.
After the January ruling, many voted in favor of the compensation package in June, arguing that Musk is essential to Tesla's success.
But critics, including McCormick, say decisions like this set a dangerous precedent by allowing a gatekeeper with a conflict of interest to lead negotiations.
Payday for Lawyers
The case affects not only Musk and Tesla, but also the plaintiffs' lawyers. McCormick ordered Tesla to pay $345 million in legal fees, one of the largest sums in the history of securities litigation.
Although far from the $6 billion initially requested, this figure highlights the magnitude of the case.
What's next for Musk and Tesla?
The case now rests with the Delaware Supreme Court, which will decide whether to uphold or reverse McCormick's decision. Meanwhile, Tesla is facing mounting pressure to demonstrate its independence and improve transparency in its corporate governance.
The ruling could be a warning to other companies with concentrated leadership structures. It also raises questions about the balance between shareholder control and judicial oversight.
The legal battle is not over, but what is clear is that Musk's future as Tesla's leader — and his record compensation — will remain in the public and legal spotlight.