With the 2018 compensation package restored, Elon Musk is about to earn an additional $139 billion.

If billionaire Elon Musk exercises all of his stock options in the 2018 package, his ownership stake in the company will increase significantly…

Billionaire Elon Musk – Photo: Getty Images

According to Reuters, billionaire Elon Musk’s 2018 compensation package at Tesla – worth $56 billion at the time – was reinstated by the Delaware Supreme Court last Friday (December 19), nearly two years after a lower court overturned the compensation agreement, deeming it “incomprehensible.”

The new ruling reverses the previous decision – a move that had sparked a strong reaction from Mr. Musk and damaged the image of Delaware’s business-friendly legal environment.

This result also strengthens Musk’s influence at Tesla, where he serves as CEO and has repeatedly emphasized that gaining control is his primary concern. Recently, Tesla shareholders approved a new compensation package that could be worth $878 billion for him if the company meets certain targets.

In its new ruling, the Delaware Supreme Court stated that the 2024 decision that canceled Musk’s compensation package was unreasonable and unfair to the billionaire.

“The ruling completely nullifies the compensation package, leaving Mr. Musk uncompensated for his time and effort over the past six years,” the new 49-page ruling states.

Musk’s compensation package is currently valued at approximately $139 billion, based on Tesla’s closing stock price on Friday.

“For Musk, this is a victory because he gained control faster,” commented Gene Munster, a manager at Deepwater Asset Management, an investor in Tesla.

According to Reuters’ calculations, if Mr. Musk exercises all of the stock options in the 2018 package, Tesla will issue additional shares to transfer to him. As the total number of company shares increases due to this additional issuance, his ownership stake will still rise from approximately 12.4% to 18.1%. In addition, the company will also issue shares tied to a new compensation package for Mr. Musk, but he will only receive them upon achieving specific business performance targets.

Tesla’s stock price rose nearly 1% in after-hours trading on Friday following the announcement of the ruling. On social media platform X, Musk wrote that he “has been vindicated.”

The legal team opposing the compensation package said they are considering their next steps and are “proud to have participated in this historic lower-level ruling,” arguing that Tesla’s board of directors and the company’s largest shareholder violated their obligation to act in the best interests of the company and its shareholders.

Musk’s 2018 compensation package was the largest ever, until Tesla shareholders approved a new compensation plan for him last November. The company may have to account for the 2018 compensation package in the form of stock instead of the promised shares to Musk, reducing profits over two years by approximately $26 billion – due to the current much higher share price.

The 2018 compensation package allowed Musk to receive options to purchase approximately 304 million Tesla shares at a significantly discounted price, provided the company met a series of targets, which were all achieved. These options represent approximately 9% of Tesla’s outstanding shares.

However, Musk has not yet received those options. Shortly after the compensation package was approved in 2018, the Tesla board of directors was sued by Richard Tornetta, an investor who held only 9 Tesla shares.

Last year, after a five-day trial, Judge Kathaleen McCormick concluded that Tesla’s executives had a conflict of interest and that shareholders had not been adequately informed when voting on the compensation package. Based on that, Judge McCormick ruled to cancel the compensation package.

Musk subsequently accused judges in Delaware of being unfriendly to tech founders and urged businesses to follow Tesla’s lead in relocating their legal registration to another state. Several large companies, such as Dropbox, Roblox, Trade Desk, and Coinbase, have moved their legal headquarters to Nevada or Texas. However, Delaware remains the most popular legal registration location for publicly traded companies in the U.S.

Tesla’s board of directors had previously warned Musk – the world’s richest man, who also runs space exploration company SpaceX and artificial intelligence startup xAI – that he could leave the company if he didn’t receive the compensation he wanted and increased voting power.

“The Delaware Supreme Court may have been quite hesitant to overturn the compensation package because it had previously received overwhelming shareholder support. Many believe the court should not interfere with shareholder choices,” Brian Dunn, director of the Compensation Research Institute at Cornell University’s School of Labor and Industrial Relations, told Reuters.

With the new compensation package for Mr. Musk approved by shareholders in November, the company has implemented additional measures to reduce the risk of becoming embroiled in legal disputes.

Tesla is currently headquartered in Austin, Texas. Under state regulations, the company can require an investor or group of investors to own a minimum of 3% of the company’s shares to file a lawsuit alleging corporate law violations. This ownership percentage is equivalent to approximately $30 billion, and Mr. Musk is the only individual holding a stake of that magnitude.