Elon Musk's appeal starts to restore his $56B Tesla pay package
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On Tuesday, March 11, 2025, Elon Musk’s appeal to restore his $56 billion Tesla pay package started with claims that the lower court judge who rescinded the 2018 compensation made a few mistakes in the case.
“That counterintuitive result defies settled principles of Delaware law, sound corporate governance, and common sense,” said the opening appeal brief.
Elon Musk, plus current and former Tesla directors, are defendants in this case. In their appeal brief, Musk and the Tesla directors argue that Delaware Chancery Court Judge Kathleen McCormick incorrectly applied the entire fairness standard to assess the $56 billion pay package and make her ruling.
According to the Delaware Supreme Court, the entire fairness standard reviews corporate transactions, including those between corporations and their controlling stockholders. The entire fairness standard may apply when a controlling stockholder receives a non-ratable benefit, or there is a potential conflict of interest.
In January 2024, Judge McCormick rescinded Elon Musk’s 2018 pay package. She said the $56 billion compensation plan was unfair to Tesla shareholders because the company’s directors at the time were “beholden” to Musk. The Delaware Chancery Judge also believed that Tesla withheld information from investors before they approved Musk’s 2018 pay package.
Musk’s appeal brief states that Judge McCormick applied the entire fairness standard because Musk controlled pay negotiations at Tesla. In addition, she determined that ordinary business relationships among directors were in conflict and faulted Tesla’s disclosures before the 2018 vote that approved Musk’s $56 billion pay package.
According to Reuters, Judge McCormick’s decision to apply the entire fairness standard granted a “license to sue” to Tesla shareholders. As such, Richard Tornetta was able to file a case in 2018, when he owned nine TSLA shares.
Tornetta filed a derivative suit or a lawsuit filed by a shareholder or multiple shareholders on behalf of a corporation against the corporation’s directors, officers, or third parties who breached their duties.
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