In a decisive ruling that caps a protracted corporate governance saga, the Delaware Supreme Court on Friday reinstated Elon Musk’s landmark 2018 compensation package from Tesla Inc., valued at approximately $56 billion when approved by shareholders. The decision reverses a lower court’s 2024 invalidation of the deal, which Chancellor Kathaleen McCormick had deemed “unfathomable” due to alleged conflicts of interest and inadequate disclosures. The package, now worth far more amid Tesla’s soaring stock, underscores the tension between executive incentives and fiduciary oversight in America’s corporate boardrooms.

The unanimous opinion from the three-judge panel affirmed that Tesla’s shareholders, who ratified the plan in 2018 and again in 2024, were sufficiently informed and exercised informed consent. “The record demonstrates that the Court of Chancery erred in concluding that the stockholder vote approving Musk’s compensation plan was not informed,” the court wrote, as reported by The Wall Street Journal. This outcome hands a major victory to Musk, Tesla’s chief executive, and bolsters the validity of performance-based pay tied to ambitious milestones.

The Origins of a Record-Shattering Deal

Designed to align Musk’s interests with Tesla’s growth, the 2018 package granted him stock options vesting upon achieving 12 tranches of escalating market capitalization and operational targets, from $100 billion in value to $650 billion, alongside revenue and adjusted EBITDA goals. Musk hit all milestones by 2022, propelling Tesla’s market cap from under $60 billion to peaks exceeding $1 trillion. Critics, led by shareholder Richard Tornetta, argued the board—composed largely of Musk allies, including his brother Kimbal—was not independent, breaching fiduciary duties under Delaware law’s entire fairness standard.

Tornetta’s 2018 lawsuit gained traction in January 2024 when McCormick voided the package, ordering Tesla to craft a new one despite subsequent shareholder re-approval. Tesla’s board complied temporarily with a smaller interim award in August 2025, but appealed vigorously. Musk, irked by the ruling, spearheaded Tesla’s reincorporation to Texas in 2024, decrying Delaware’s judiciary as hostile to shareholders, according to posts on X from Tesla and Musk himself.

Delaware’s Rigorous Fairness Scrutiny

Central to the dispute was the application of Delaware’s “entire fairness” review, triggered by Musk’s control as Tesla’s largest shareholder and board dominance. The Supreme Court, however, found the lower court overreached. “No rational stockholder would approve the unprecedented compensation if they were duped into believing it was fair,” the opinion stated, per CNBC. It emphasized proxy disclosures detailing board ties, consultant fees, and peer comparisons, deeming them adequate.

The ruling arrives as Tesla grapples with softening EV demand and competition, yet its stock has rallied over 80% in 2025 on optimism for autonomous driving and robotics. The package’s reinstatement, potentially worth $139 billion to $155 billion today based on current share prices, dwarfs traditional CEO pay, drawing scrutiny from governance watchdogs. Tesla shares rose 4% in after-hours trading Friday, reflecting investor relief.

Shareholder Ratification’s Resurgent Power

A pivotal factor was the 2024 shareholder vote, post-trial, approving the package anew with over 70% support excluding Musk’s shares. The Supreme Court credited this as “an effective ratification,” shifting the burden back to plaintiffs. This contrasts with McCormick’s view that the original vote was uninformed due to omitted fairness opinions. “The dual ratification by fully-informed shareholders mooted the entire fairness analysis,” analysts noted in TechCrunch.

Legal experts hailed the decision as a rebuke to judicial overreach. “It reaffirms that informed shareholder votes carry significant weight, even in controlled company contexts,” said Charles Elson, a corporate governance professor, cited in MarketWatch. For Delaware, the state’s Chancery Court—preferred by 60% of Fortune 500 firms—faces questions after high-profile losses, including Musk’s exodus.

Musk’s Reaction and Broader Market Ripples

Musk celebrated on X, posting: “The people have spoken,” echoing prior frustrations. Tesla’s move to Texas, ratified by 87% of shareholders in 2024, may inspire others; already, firms like Neuralink followed suit. The ruling bolsters performance pay models at peers like Nvidia, where CEO Jensen Huang holds vast equity stakes tied to results.

Yet dissent lingers. Tornetta’s lawyer, Greg Varallo, signaled potential further action, though options dwindle. Institutional investors like Norway’s sovereign fund, which opposed the 2024 ratification, decry excessive pay amid Tesla’s recent profit dips. The package vests no new options but honors the original terms, per The Guardian.

Implications for Executive Compensation Design

This verdict recalibrates how boards structure incentives for transformative leaders. Delaware law now clarifies that robust disclosures and post-challenge votes can cleanse conflicted transactions. “It sets a high bar for plaintiffs challenging ratified deals,” observed Wachtell Lipton partner Charles Pierce in The Australian Financial Review.

For Tesla, it frees Musk to focus on ventures like xAI and Starlink without pay overhang, potentially stabilizing leadership amid 2025’s robotaxi push. Governance reformers warn of a slippery slope toward unchecked CEO power, but proponents argue such “moonshot” pay fueled Tesla’s 1,200% stock surge since 2018. As markets digest the news, the case cements Musk’s influence in Silicon Valley’s reward structures.

Texas Shift and Delaware’s Reckoning

Tesla’s 2024 reincorporation, prompted by the initial Chancery ruling, highlights Delaware’s vulnerabilities. Chancellor McCormick’s decisions in this and related cases, like voiding Musk’s $56 billion despite board defenses, fueled exodus fears. “Delaware’s supremacy is under threat,” noted Harvard Law’s John Coates. Over 20 companies have fled since, per recent web searches on corporate migrations.

The Supreme Court’s affirmance restores equilibrium, affirming Chancery’s role while curbing perceived activism. Musk’s package, comprising 304 million shares (adjusted for splits), equates to about 9% of Tesla today. With no cash salary since 2019, it exemplifies equity-driven leadership, credited by fans for Tesla’s dominance in EVs and energy storage.