Elon Musk's Tesla Pay package is declared invalid by the judge

A Delaware judge ruled Tuesday in favor of Tesla shareholders who filed a lawsuit to block the pay package that helped make Elon Musk, the automaker's CEO, many times a billionaire and the richest person in the world.

“The process leading to the approval of Musk's compensation plan was deeply flawed,” Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery said in the decision. She ordered that the contract that secured his record payment be annulled.

A group of Tesla shareholders had challenged a stock option package that ultimately gave Mr. Musk the right to acquire Tesla shares worth more than $70 billion if the stock price was higher. To receive the award, which was one of the largest of its kind and widely imitated by other companies, Tesla had to meet certain sales, profit and stock price targets.

The lawsuit took on even more significance following Musk's acquisition of Twitter in 2022. He was widely criticized for spending time overhauling Twitter as Tesla's shares tumbled and its growth slowed amid increasing competition. One justification for Musk's pay package at Tesla was that it was a way to keep him focused on building cars.

The case also raised questions about Tesla's corporate governance and whether the board, which includes some close friends of Musk and his brother Kimbal, is doing anything to rein in Musk's behavior. The lawsuit alleged that Mr. Musk had played a major role in shaping his pay package.

The judge agreed. “Eventually,” she wrote, “Musk launched a self-driving process, gradually recalibrating the speed and direction as he saw fit. The process came at an unfair price.”

Mr. Musk also testified at the trial, suggesting that his impact on the auto industry justified his pay. “Tesla has had a huge impact on the world,” he said. “It's not just that Tesla makes electric vehicles – we've really been the main reason why the rest of the auto industry has switched to sustainable, electric vehicles.”

The case was heard in Delaware because Tesla, like many companies, is incorporated there.

This is a development story. Check back for updates.