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Elon Musk's $56 billion Tesla pay package has been tossed out by the court

The judge called Musk's compensation an 'unfathomable sum.'

Omar Marques via Getty Images

In 2018, Tesla awarded Elon Musk a $56 billion pay package that helped propel him to the top of world's richest lists. Now, a judge in Delaware has rendered the deal between the company and the CEO to be invalid and called the compensation an "unfathomable sum" that's unfair to shareholders. As initially seen and reported by Chancery Daily on Threads, the court of Chancery in Delaware has released its decision on the lawsuit filed by Richard Tornetta. The Tesla shareholder accused the automaker of breaching its fiduciary duty by approving a package that unjustly enriches its chief executive.

Judge Kathaleen McCormick wrote in the decision that Musk "enjoyed thick ties" with the directors who were in charge of negotiating his pay package on behalf of Tesla, which means there "was no meaningful negotiation over any of the terms of the plan." The judge also talked about how Musk owned 21.9 percent of the automaker when the package was negotiated. That gave him "every incentive to push Tesla to levels of transformative growth," because he stood to gain $10 billion for every $50 billion in market capitalization increase.

"Swept up by the rhetoric of 'all upside,' or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?" the judge wrote in the court document. As The Washington Post notes, she ruled that Tornetta is entitled to a "rescission" and has ordered Tesla and its shareholders to carry out her decision and undo the deal. Musk's camp, however, can still appeal her ruling.

Musk has sold some of his Tesla stocks to help pay for his acquisition of Twitter, now X, from the time his pay package was approved. At the moment, he owns around 13 percent of Tesla, though he recently said that he wants 25 percent control over the company before he's comfortable growing it to be a leader in AI and robotics.

In response to the court's decision, Musk tweeted: "Never incorporate your company in the state of Delaware." He also posted a poll asking followers whether Tesla should change its state of incorporation to Texas, where its physical headquarters are located.