Elon Musk just won back his $56 billion Tesla pay package

Delaware’s Supreme Court ruled that Tesla must restore Elon Musk’s 2018 CEO performance award, rejecting a lower‑court remedy that had completely canceled the package.According to Reuters and The New York Times, the justices split on parts of the liability analysis but agreed that rescinding the entire package was “an inappropriate remedy” given Tesla’s subsequent performance and shareholder support.The decision effectively clears the way for Musk to exercise options on about 303 million Tesla shares (split‑adjusted), a stake CNN values at roughly $139 billion based on the stock’s latest closing price.To give you a sense of scale, that option haul is equivalent to roughly 12% of Tesla 2018 share count, a level of ownership that further tilts voting power and long-term control toward Musk even as it slightly dilutes every other holder.How the $56 billion package worksThe 2018 plan was structured as 12 tranches of stock options that vest only if Tesla hits a series of market‑cap, revenue, and earnings milestones over ten years.Targets started at a $100 billion market value and climbed in $50 billion steps, all the way up to $650 billion, with each hurdle also tied to ambitious top‑line and profitability goals that many analysts in 2018 considered “mission impossible.”Those milestones were met as Tesla’s market cap surged and the company shifted from perennial losses to sustained profitability, turning the theoretical $56 billion pay plan into a package now valued at around $140 billion, depending on Tesla’s share price. The original award was designed to pay out only if shareholders had already seen massive gains, but it also meant issuing new stock, which experts estimate could ultimately dilute existing holders by nearly 9% once all options are exercised.The seven‑year legal fight in DelawareThe court battle began in 2018 when small shareholder Richard Tornetta sued in Delaware’s Court of Chancery, arguing Musk effectively controlled Tesla’s board and that the process behind the pay plan was fatally conflicted. Shutterstock After a lengthy trial, Chancellor Kathaleen McCormick voided the award in January 2024, calling it “unfathomable” and ruling that Tesla’s directors were too close to Musk and failed to fully inform shareholders of key facts before the 2018 vote.Tesla then doubled down: the board put the package back to shareholders in June 2024, winning renewed approval, and later used that vote as a centerpiece of its argument that investors knew exactly what they were doing and wanted Musk to have the pay.After that defeat, Tesla went back to its investors: in June 2024 the board asked shareholders to re‑approve the package, won fresh backing, and then pointed to that vote as proof that investors understood the deal and wanted Musk paid.More Personal Finance:Why selling a home to your child for a dollar can backfireElon Musk says ‘universal high income’ is comingFTC, 21 states sue Uber over ‘shady’ subscription billingTrump’s bold new tax promise has families asking one big questionSoFi Bank Shakes Up Subscription Product, Launches New Charge CardIn December 2024, CNBC reported that McCormick reaffirmed her ruling and again rejected Musk’s bid to reinstate the package, prompting Musk, Tesla, and several directors to appeal to the Delaware Supreme Court and to publicly question Delaware’s business climate.Why the supreme court reversed courseOn appeal, Tesla’s lawyers told the justices that canceling the package created a “counterintuitive” outcome under Delaware law by stripping Musk of compensation even though shareholders had enjoyed enormous gains from Tesla’s success.According to The New York Times’ readout of the opinion, the Supreme Court held that, even if there were defects in the original process, rescission went too far when a later, more fully informed shareholder vote had ratified the deal.The justices also emphasized the broader equity question: Musk had spent six years hitting unprecedented performance targets, and leaving him entirely uncompensated for that effort was, in the court’s view, “inequitable,” especially after the 2024 ratification vote.For Delaware, which has faced “Dexit” criticism as big tech and venture‑backed firms shifted incorporations to Texas or Nevada, the ruling helps reassert its reputation as a predictable, management‑friendly corporate law hub.What this means for Tesla’s stock and your portfolioFrom a practical investing standpoint, the ruling has three immediate implications for you: Musk is more financially locked in to Tesla, the risk of alternative contingency awards shrinks, and debates over dilution and governance intensify.CNBC previously reported that Tesla had booked large accounting charges for a backup compensation plan that would kick in if Musk lost the appeal; with the 2018 package restored, that expensive contingency structure is likely off the table.That’s a win for near‑term earnings optics, because Tesla doesn’t have to stack a new, multi‑tens‑of‑billions plan on top of the old one, but the sheer size of the reinstated award still weighs on questions like: How much control is too much for a single CEO, and how many shares can you comfortably see issued without hurting your own stake over time?At the same time, the market has generally treated Musk as Tesla’s irreplaceable engine for AI, autonomy, and robotics, and the board has repeatedly framed oversized pay as the cost of keeping him focused on Tesla instead of X, SpaceX, or new ventures.If you’re bullish on Musk as the driver of long‑term value creation, this ruling is likely welcome: he now has an even stronger incentive to devote energy to Tesla’s next decade of growth.If you lean more toward governance and risk control, the decision may reinforce concerns that investors are effectively betting on a “key‑man” structure where board independence and succession planning take a back seat to keeping one superstar happy.The bigger fight over CEO payThe reinstated plan drops into a broader moment where Tesla shareholders have already been asked to back an even larger, roughly trillion‑dollar prospective package that would reward Musk if Tesla’s value climbs into the multi‑trillion‑dollar range.According to Fortune’s analysis, the new framework again uses twelve performance tranches, this time tied to market‑cap goals starting around $2 trillion and potentially stretching toward $8.5 trillion, with payouts that could make Musk the first trillionaire if everything goes right.Tesla’s board has argued in that proxy that Musk cares most about voting influence and ownership, and that giving him a path to a larger stake is the best way to keep him at Tesla and aligned with shareholders as the company leans hard into AI and robotics.But CNBC has reported that support for Musk’s latest pay plans has slipped from earlier levels, with more big funds voting “no” as questions grow about governance, social risk, and whether supersized packages are necessary for a CEO who is already extremely wealthy.How to think about the ruling as an investorIf you own Tesla now, the ruling doesn’t change the underlying business overnight, but it does clarify compensation overhang and removes one major legal risk that had been hanging over the stock.You should still weigh:How much more upside you believe Tesla has in EVs, energy, and AI versus its current valuation.Whether Musk’s concentrated incentive now makes Tesla more of a “founder‑risk” story, where his decisions on politics, social media, or other ventures can swing sentiment on your shares.How comfortable you are with large equity grants that dilute other holders but arguably kept Tesla alive and growing during its toughest scaling years.If you’re on the sidelines, this decision is a reminder that investing in Tesla is not just a bet on EVs or margins—it’s a bet on a governance model that gives extraordinary leverage to one person, backed by shareholders who have repeatedly said, in effect, “pay him and let him run.”In other words, you’re not just buying a stock chart; you’re buying into a compensation philosophy that ties your long‑term returns to the performance of Elon Musk.For retail investors, that may be the real lesson of the delaware ruling: boards can still push the boundaries of performance-based pay when shareholders sign off, but you’re the one absorbing both the upside of that alignment and the downside if a “superstar ceo” stumbles.Related: Elon Musk says "universal high income" is coming