Musk’s Trillion-Dollar Pay Case Rewrites Corporate Board Rules

Tesla shareholders will vote in November on what would be the largest pay package in corporate history: A 10-year, $1 trillion compensation plan for CEO Elon Musk. The deal has reignited a corporate governance debate on shareholder democracy and executive pay.

While various states have different standards for corporations, there is no doubt that Tesla’s corporate governance conduct has already influenced precedent, not only in case law but also as a matter of policy.

It demonstrates how a dominant founder or CEO can influence board composition and strategic decision-making, and how boards can navigate state law, supermajority voting thresholds, and bylaw provisions to balance direction with oversight. It also underscores the importance of independent directors in mitigating conflicts of interest and protecting shareholder interests.

When directors are structurally independent and empowered to resist managerial influence, they provide a check on self-dealing and ensure that major transactions are subject to genuine arm’s-length review. Delaware courts in particular have emphasized that the credibility of board decision-making hinges on independence, both in fact and in appearance, making it a cornerstone of corporate governance.

The shareholder vote on Musk’s executive compensation follows a series of ongoing legal battles stemming from the previous pay package. In 2018, 73% of Tesla shareholders approved a compensation package for Musk worth around $56 billion in stock. This deal was contingent on Musk increasing Tesla’s market cap from $50 billion to $650 billion over the span of 12 tranches.

Despite meeting all targets, the Delaware Court of Chancery held in Tornetta v. Musk that Musk’s compensation package was unfair to the company and its shareholders, both in process and price. The court required that he return the stock, reasoning the board lacked independence, and the stockholders weren’t fully informed.

Tesla then held another shareholder meeting when roughly 77% ratified and approved the package, despite the Tornetta judgment. Once again, the court rejected the attempt, holding that post-trial ratification couldn’t overturn the earlier ruling. Chancellor Kathaleen McCormick concluded that the board “capitulated to Musk’s terms and then failed to prove those terms were entirely fair.”

The Court of Chancery applied the “entire fairness” standard, which requires the transaction price and process to be fair. At the time,Musk didn’t own a majority of the voting power—he owned about 21.9% of the company’s shares—so why did the court consider him to be a controlling shareholder? As seen in a handful of other Court of Chancery cases, a minority stockholder may be deemed a controller if that stockholder has significant influence on the board—as if they were a majority stockholder.

Both decisions are on appeal to the Delaware Supreme Court awaiting review.

Tesla has made it clear that it no longer wishes to subject the corporation to jurisdictional oversight in Delaware. In June 2024, the corporation moved its legal headquarters to Austin, Texas, where it’s had physical operations since 2021. The shift was largely prompted by the Court of Chancery’s ruling coupled with Texas’ growing tech hub, policies, and laws that strongly favor Tesla’s governance systems and to prevent litigation similar to Tornetta.

The vote in November asks shareholders to approve two proposals. One is the forward-looking $1 trillion plan that ties Musk’s pay to operational milestones: vehicles delivered, robotaxi fleets deployed, humanoid robots produced, and software subscriber growth. The metrics are designed to align incentives with Tesla’s long-term growth rather than speculative financial targets.

The other proposal seeks to restore part of what Delaware rescinded. Tesla is trying to use the 2019 employee equity plan—originally for broader “rank and file” employee awards—to grant Musk stock contingent on losing the Delaware appeal. Because this grant depletes the employee pool, Tesla is now seeking shareholder approval to amend the plan, replenish allocations, and authorize directors to grant Musk the remainder of the 2018 award if the Delaware Supreme Court upholds the Tornetta decisions.

Partially in response to criticism of Tornetta, Delaware amended its General Corporation Law in early 2025 to clarify that shareholders with less than one-third ownership generally can’t be deemed controlling. This change reflects ongoing adjustments to corporate governance standards in response to high-profile litigation.

Texas also passed a law curtailing shareholders’ ability to challenge corporate decisions if they don’t own at least 3% of the outstanding equity. Only four Tesla shareholders currently possess the ability to do so: Musk and three other asset managers.

Many critics of Tesla view the repeated effort to secure Musk a record-breaking pay package as unjust enrichment disguised as well-earned incentives based on executive output. Others, such as current Chair Robyn Denholm, who sat on the special committee that designed the new proposal, brushed off the criticism in media interviews, stating that Musk requires significant pay to accomplish ambitious company goals.

While the November vote will determine whether Musk receives both the forward-looking and retrospective awards, the stakes go beyond pay; it is a referendum on corporate governance itself.

The Delaware Supreme Court’s decision regarding Musk’s previous pay plan will further determine whether Tesla’s governance approach becomes a framework for other founder-led companies or a cautionary tale about the limits of executive control and the importance of board independence.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Anat Alon-Beck is a professor of law at Case Western Reserve University Law School and a visiting scholar at Harvard Law School.

Sophia Fisher is a third-year law student at Case Western Reserve University Law School.

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