Musk’s One-Sided Deal Invalidated

On Tuesday January 30, Chancellor Kathaleen McCormick of the Delaware Court of Chancery ruled after a trial that Elon Musk’s ginormous compensation package from Tesla was invalid in Tornetta v. Musk. She concluded that (1) Musk controlled Tesla and that the compensation committee of the Tesla board was insufficiently independent, (2) that the ratification of the pay package by a majority vote of the minority shareholders (i.e. excluding the votes of Elon Musk and his brother) did not cure the self-dealing because it was not a properly informed vote, and (3) that while recission (undoing the entire compensation package) was not the only permissible remedy, it was within her discretion to award that remedy and she viewed it as appropriate in this case. Her opinion is quite readable — I even laughed outloud at multiple points, particularly her comment that “more adroit” judges had previously found ways to avoid determining whether Musk controlled Tesla, op. at 2, and 13 n. 58, in which she provided support for the statement “Colonizing Mars is an expensive endeavor.” by taking judicial notice of that fact (i.e. saying that it’s something the court can know without needing any concrete evidence). The opinion is, however, the length of a short book (about 200 pages), and somewhat repetitious. I want to provide some thoughts on her careful, thorough opinion and why I agree with her conclusion, though I disagree with some of the points she adopts along the way.

Some Legal Terminology Upfront

First, a couple of bits of terminology: because this is a case in the Delaware Court of Chancery, the judge is referred to as a “chancellor;” this title is equivalent to “chief judge” in most other trial courts, and simply means a trial judge with some additional administrative responsibilities and more seniority than the other judges (the “vice-chancellors”). The Court of Chancery is a specialized court in Delaware; it is a trial court, with exclusive jurisdiction over claims in equity as opposed to in law, which is legalese for claims that seek a court order (an injunction) to do or not do something, as opposed to money damages or a criminal claim. In practice, because Delaware is home to so many corporations, the Court of Chancery is primarily a court for resolving corporate law disputes. One of the major reasons that many corporations choose to incorporate in Delaware is that Delaware both has very favorable laws for corporations and has the Court of Chancery, which is an expert court with a sophisticated understanding of corporations and finance and extensive experience resolving disputes about corporate matters. In general, the Court of Chancery is extremely well-regarded in the legal community — among the most well-regarded state trial courts in the country. Losing litigants in the Court of Chancery have an appeal as of right directly to the Delaware Supreme Court, meaning that they have a right to have the Delaware Supreme Court review their case — this is unlike most appeals to most state courts of last resort, where the courts have discretion over whether to hear the appeal at all.

In this case, a Tesla shareholder brought a derivative action against Elon Musk and various boardmembers of Tesla. A derivative action means that it’s a law suit on behalf of the corporation; though Tesla was nominally a defendant in this case, the shareholder is seeking a judgment to benefit Tesla at the cost of the real defendants, which will then benefit the shareholder indirectly through their ownership of Tesla stock, rather than seeking a direct benefit for themself.

Elon Musk, Tesla, Billions in Compensation, and Hundreds of Billions of Growth

The lawsuit revolves around the largest compensation package any public corporation has ever given any employee: in 2018, Tesla entered into a compensation agreement with Musk where he would receive stock options with a strike price (the cost to exercise the options) equal to the stock’s price in 2018 if Tesla met a series of goals, measured primarily by increases in the total value of all outstanding shares of Tesla stock (its market capitalization) but also by hitting various revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) targets. This was an enormous compensation package — it had a fair market value, as calculated by accountants, of $2.6 billion at the time of the grant, and a value if all of the targets were met of $55.8 billion. No other employee of any publicly traded corporation has ever received a compensation package even close to this one in size — the next closest package ever was a prior compensation package granted by Tesla to Musk in 2012, and even that one was worth 33 times less. At the same time, because it consisted solely of the potential to earn stock options by hitting milestones, Musk would receive nothing if he did not achieve the targets.

Before getting into the details, I need to address the elephant in the room: Elon Musk is in many ways a terrible person, but his success in growing Tesla from 2018 to date was very real. His social media posts range from crazy to stupid to outright evil, and he has wasted an enormous amount of money on purchasing Twitter for the purpose of turning a useful albeit problematic social media company into a cesspool of Nazis, racists, and bigots. Whatever else can be said about Musk, he’s clearly mercurial, self-absorbed, and possessed of poor judgment, which has sometimes greatly harmed Tesla.

At the same time, Tesla’s success since 2018 has been nothing short of amazing. When Tesla’s shareholders approved the 2018 compensation plan in March 2018, Tesla had a market capitalization of $53 billion. Tesla’s market capitalization peaked in 2021 at roughly $1.2 trillion — a more than 20x growth for a firm that was already priced as a large and important company, with a great deal of growth already priced in. Even today, when Tesla’s market capitalization has fallen substantially, its market cap is about $580 billion, a more than 10x increase from March 2018 and the 11th largest market capitalization in the world.

Okay, but market capitalization can represent castles in the clouds, with stock prices pumped up by irrational exuberance and “animal spirits,” and Musk in particular is always making unrealistic claims about what Tesla will achieve Real Soon Now. Leaving aside increases in stock price, which could just be a bubble, has Tesla actually achieved much in terms of real economic significance since 2018? Absolutely, without question.

In 2017, Tesla delivered about 103,000 cars — a tiny fraction of the overall car market. In 2022, Tesla delivered more than twelve times as many, with about 1.3 million deliveries, and in 2023 it delivered about 1.8 million cars. That’s still a small number compared to the world car market — in 2023, 88 million light vehicles or so were purchased worldwide. For comparison, Tesla’s sales now are comparable though slightly smaller than BMW’s (2.3 million vehicles in 2023). Nonetheless, this represents enormous growth.

Moreover, Tesla essentially drove the growth of the entire electrical vehicle market over that time period. During the entire time from 2018 to present, with the exception of the very end of 2023 with the rise of the Chinese car firm BYD, Tesla has been the largest EV manufacturer in the world. By eating the lunch of luxury car manufacturers, Tesla has put heavy pressure on companies like Daimler Benz and BMW to shift towards EV production. Tesla has also placed pressure that has rapidly increased the emphasis on EVs in mass-market car companies, and has broken the ground for the rise of several dedicated EV companies focused on the huge Chinese market. Today, for most light vehicle needs, EVs deliver a better experience with a lower total cost of ownership than comparable gas-powered cars. Just about every car manufacturer has a plan to move towards producing EVs, with most planning on eventually producing only EVs. The share of the total car market that consists of EVs is likely to grow continuously until the Internal Combustion Engine is a thing of the past (or at least relegated to a few minor specialized purposes). Regardless of what share of the market Tesla ends up with, the speed of that progression is largely the result of Tesla’s success.

Turning back to financial matters, Tesla has also gone from a tenuous state in 2017 to robust profitability. In 2017, Tesla had total revenue of about $11.8 billion (the vast majority from the auto business), and a loss for the year of about $1.9 billion. While Tesla had a market cap of about $53 billion and assets worth about $29 billion, it also had $15 billion of long-term obligations. A company of that size that’s burning nearly $2 billion a year will quickly end up in real trouble if it can’t turn things around. However, with the increase in sales of the Model 3 and later the Model Y, Tesla did turn things around. As of the end of 2023, Tesla was reporting annual revenue of about $96 billion (again, with the large majority from the auto business), and a net income of about $15 billion. Those numbers were actually disappointing to Wall Street, because Tesla was doing better a year or two ago. But the point remains: over 6 years, Tesla went from $12 billion in revenue and a loss of $2 billion to $96 billion in revenue and a profit of $15 billion. People can argue, and I tend to agree, that Tesla’s market capitalization is unreasonably high for a small car company — Tesla’s market cap is half again as much as Toyota’s, and Toyota is the largest automotive company in the world with three times Tesla’s revenue and 20% larger profit. But even if Tesla’s share price is unduly high (part of which may be because of Musk’s reputation and fans), Tesla’s growth and success over the last 6 years has been very real.

It’s fair to attribute a significant part of that growth to Musk as the CEO and visionary (and “founder,” even though he was not in fact part of the initial Tesla team). Maybe he was lucky and in the right place at the right time. Maybe by the time the Model 3 was released, Tesla’s future success was actually assured, even though it hadn’t happened yet. But maybe his leadership was absolutely essential, and a core part of both Tesla’s business operations and branding. His leadership may also be directly responsible for Tesla’s high stock price relative to its earnings, which is still a real benefit for Tesla’s stockholders. Tesla’s board and most of its shareholders clearly think Musk’s leadership was of vital importance, and Chancellor McCormick actually agrees in her opinion. The question, then, is whether an enormous compensation package for a CEO who delivers transformative success is something that a court can second guess at all, and if so, whether this particular compensation package was fair.

The Legal Framework: When Do Courts Not Defer to Business Judgment?

In general, what salary and compensation is appropriate to pay an employee, including a CEO, is a matter for the managers of a company (or the board of the company, in the case of the CEO and similar top-level figures) to determine. One of the basic principles of corporate law is the “business judgment rule,” which essentially means that under ordinary circumstances, a court will not second guess the actions of the board of a corporation and its senior management when they make business judgments in good faith, even if those judgments turn out to be wrong. If a company decides it needs to pay an employee a large amount because of that employee’s special talents, courts will ordinarily not ask whether that amount is too much or whether the business could have gotten similar services at a better price. Maybe management was right, maybe they were wrong, but it’s not the court’s place to substitute their judgment for the good faith business judgment of management.

This case, however, deals with a special situation. For essentially as long as there has been the legal concept of people acting as agents for other people, courts have sought to deal with agency costs, and in particular the risk of self-dealing. If I hire someone to act as my agent and sell my house, they have a duty to act on my behalf. If they decide to sell my house to themself, courts recognize that there is a very high risk that they will actually act on their behalf by selling at a price below the market value, not on mine by seeking the best price they can get, and that’s a problem. Similarly, the board of a corporation is supposed to be a group of agents for the shareholders of a corporation. If a majority shareholder controls the board, they can take advantage of the minority shareholders by paying themself “salary” which in fact includes substantial money that should be understood as the profit of the corporation (and thus ought to be shared out among all the shareholders, in proportion to their equity stakes in the company). These problems arise all the time in businesses large and small — I’ve experienced similar issues in my own business experience — and courts have developed exceptions to the usual deference to board decisions to cover these contexts.

The obvious problem is when a shareholder owns a majority of the outstanding stock and has legal control over the board as a result. However, even when a shareholder doesn’t control an actual majority of the stock of a company, they may have functional control. To begin with, in light of the number of shares that are typically not voted at all in board elections, something like 40% ownership is typically enough to exert complete control over the board elections. But even at lower ownership stakes, if the board is sufficiently beholden to a major shareholder, they may be able to exercise de facto control.

When a board is under the control of a major shareholder and that shareholder is also the CEO, the compensation package of the CEO is not entitled to ordinary judicial deference without more steps to establish that the process was made in an arms-length style of decisionmaking. Corporations typically use several tools to try to make their compensation decisions defensible in these cases, many of which were used in this case. They have the CEO recuse themself from any votes about the package, along with any other board members they identify as too closely tied to the CEO. They hire an outside compensation consultant to help them develop the package, and they employ lawyers and other professionals, both inside the company and as outside counsel, to advise them. And they may also, as here, submit the compensation package to a shareholder vote in which the CEO cannot vote their shares to ratify the board’s decision.

Under Delaware law, a board’s adoption of a compensation package is entitled to substantial court deference if either (a) it’s made through a process that creates sufficient evidence of lack of control by the major shareholder to avoid the agency problem or (b) it’s ratified by an informed vote of the minority shareholders, thus confirming that they directly approve the terms of the compensation package instead of merely relying on the board’s judgment to represent them. If neither of those conditions applies, then the court examines whether the transaction was “entirely fair,” with the burden on the board to establish its fairness. (The degree of deference between a non-controlled process and a controlled process ratified by a minority shareholder vote may differ, but in this case, neither ended up being relevant.) If the court concludes that the deal fails the entire fairness test, it then determines an appropriate remedy.

The Court Correctly Concluded that Musk Controlled the Compensation Process

Chancellor McCormick carefully examined a large body of evidence to determine whether she felt that Musk controlled the board’s compensation process. Musk’s ownership stake at the time of the 2018 compensation plans adoption was 21.9% of the total shares of Tesla. That falls into a middle category — not the sort of majority or near-majority holding from which a conclusion that the CEO controlled the board would follow automatically, but well large enough to raise concerns about whether Musk controlled the process. Chancellor McCormick focused on the details of the process. She found that Musk drove the process from the beginning; he suggested the original terms of the compensation plan, which ultimately were similar to the ultimate terms. When he asked for the process to happen, the compensation committee met rapidly, and when he decided to slow things down, the process basically stopped.

While Musk and his brother recused themselves from the compensation package’s consideration, he had very deep ties with most of the other directors — most of whom had gained life-changing levels of wealth from Musk’s companies and regularly socialized and traveled with Musk and his family. Even the compensation committee consisted largely of people who were significantly beholden to Musk. And while they were advised by Tesla’s then-general counsel, it’s not clear that he thought of himself as representing the board, rather than as representing Musk personally. Prior to being general counsel, he had been Musk’s divorce attorney (family law practitioners transitioning directly to serving as general counsel for a multibillion public company is highly unusual), and when he talked about his relationship with Musk and his subsequent decision to leave Tesla, he broke out into tears.

The compensation committee was advised by an outside compensation consultancy and outside legal counsel, but the facts make it seem like they viewed their job as more justifying the deal Musk was setting than providing impartial advice about the corporation’s best interests. In particular, they did not provide a list of comparable compensation packages for benchmarking. That’s the standard process for a CEO compensation decision — you identify peer companies, you look at their CEO’s compensation, and then you use that to set your CEO’s compensation. The benchmarking process has been criticized as too friendly to CEOs — each board wants to think that their CEO, who after all they choose to have running the company, is unusually good, so the process often leads to a continuous upward ratchet where each company identifies peers of their CEO and then pays their CEO at the top of the range or just above the range identified. But in this case, the consultants didn’t provide benchmarking at all, because they knew that would make this compensation package look worse, not better, because of how much larger it was than similar packages.

Furthermore, everyone involved in the negotiations treated Musk as absolutely vital to Tesla — a “superstar CEO,” to use a concept that the court focused on. That inherently gave Musk more power in the negotiations than a typical CEO might have, providing additional evidence that Musk controlled the board with regard to his compensation.

Chancellor McCormick also gave heavy attention to what she viewed as evidence of a lack of negotiation — in particular, to a lack of the style of horse-trading where the two sides of a negotiation stake out adversarial positions and try to push the other side towards their position. She pointed out that there was no real negotiation about the size of the grant, which is I think a telling point. However, she also placed great weight on the lack of positional negotiation. She quoted at length the testimony of board members that “we were not on different sides of things” (Ehrenpreis testimony, op. at 145 and n. 727), that “we focus on what’s fair and what feels fair to people and what’s fair to the shareholders,” (Gracias testimony, op. at 145 and n. 728, emphasis added by Chancellor McCormick), and that “We never engage in these positional negotiations, I want 10, you want 3, let’s yell about it. That’s not how we do things, not how anyone does things,” Id. (emphasis added by Chancellor McCormick). Under her analysis, that “said it all.” Op. at 144.

I disagree with this part of Chancellor McCormick’s analysis of the negotiations. One of the central strands of modern negotiation theory, building out from the Harvard Negotiation Project’s work and its product, Getting to Yes, by Roger Fisher and William Ury, is that positional negotiation and horse-trading can be destructive of value and of relationships. Instead, Fisher and Ury argue that negotiations grounded in an effort to find what’s fair for all parties and to look at the underlying interests of each party, rather than digging in to specific positions, can help “grow the pie” for everyone while leaving both parties better off and interested in working together in the future. In the context of an ongoing relationship requiring close collaboration, as between a board and a CEO or an employee and their manager, focusing on positional negotiation can be particularly destructive. Instead, approaches based on trying to find an outcome that’s fair to all parties — exactly as Garcias’s testimony described — may be a better approach to negotiating.

I don’t want to suggest that all negotiation theorists embrace Fisher and Ury’s approach, or that believing that positional negotiation is appropriate when negotiating a pure zero-sum outcome like how much party A will pay party B is inherently wrong. However, I don’t think it’s appropriate for a court to conclude that following a strategy of negotiation advocated by many experts and taught in many programs on negotiation inherently indicates a failure to meaningfully negotiate. Notably, Gracias’s testimony that “That’s not how we do things, that’s not how anyone does things” suggests that he thought that a Fisher-and-Ury style, collaborative negotiation trying to find a mutually fair result and avoiding positional negotiation is not aberrational in the business context but is instead normative. Even the idea that a compensation package is purely zero-sum, where a gain by the recipient is a loss for the employer, is debatable — it can be better for an employer to pay an employee what they are worth and have a happy, loyal, and productive employee than to get the same employee’s work on the cheap and have a disgruntled employee who does the bare minimum while looking for a new job.

But while I disagree that this testimony provided strong evidence that Musk controlled the board’s consideration of his compensation package, I agree with Chancellor McCormick’s overall conclusion. In particular, I agree that the failure of the board and management employees to adequately identify the existence of a conflict of interests and to take steps to address it does support a conclusion that the process was controlled by Musk. One of the other points that Chancellor McCormick made was the ways in which Musk flouted his settlement with the SEC and acted in a manner that indicated that he believed that he unilaterally controlled Tesla (for example, changing his corporate title on a whim to “Technoking” or diverting staff to work on one of his other corporation’s business), and the failure of the board to do anything to rein him in or to require him to actually act in the best interest of Tesla is telling.

The terms of the agreement also strongly suggest that Musk controlled the process. In particular, while the boardmembers testified that they prioritized making Musk keep Tesla as his number one focus, they did not include any terms that meaningfully required him to do so. Many compensation agreements with highly compensated CEOs would prohibit holding outside positions, such as the positions as CEO of Space X and of Twitter that Musk held during the time span covered by the agreement. In Tesla and Musk’s case, that might not have been appropriate — he already had a pre-existing commitment to Space X and would likely have been unwilling to accept a condition that required him to eliminate his role there. But even without a categorical ban, Tesla could have extracted a commitment to a degree of focus — for example, requiring Musk to work a certain number of hours each week for Tesla or limiting the amount of outside work that he could do to a set amount. The board did not even seek to include any provision like that, and Musk testified that it would have been “silly.” Op. at 59. That’s probably true — Musk would likely have been unwilling to agree to (or to follow through on an agreement he made) any conditions that restricted his ability to do whatever he wanted with his time. But without any restrictions on how he spent his time, the requirement that he hold the position of CEO (or of Chief Product Officer and Executive Chairman, with the CEO reporting to him) was completely hollow. The board’s top priority was making Tesla Musk’s number one focus, but they failed to even meaningfully seek a contractual obligation binding Musk to that.

To my mind, this is the single biggest red flag of the whole transaction. Tesla agreed to a plan that gave Musk billions of dollars of value — and that did nothing to mitigate the risk that Musk would spend more time arguing with randos on the internet and blowing up a social media website’s credibility and value than on actually running Tesla. Indeed, while Tesla’s market cap peak in 2021 doesn’t quite line up with when Musk began focusing a high amount of his attention on acquiring, not acquiring, then actually acquiring and running Twitter (2022), an easy case could be made that Musk allowed himself to be distracted and Tesla paid the price.

All told, I agree heartily with Chancellor McCormick’s conclusion that Musk controlled Tesla for purposes of the adoption of the compensation plan.

Problems with the Minority Shareholder Approval Vote

Even in the context of a board decision controlled by a major shareholder, the ratification of the compensation agreement by the minority shareholders in a properly informed vote can be sufficient to give an agreement the benefit of a presumption of fairness. After all, if a majority of the people (by equity stake) who might be harmed by the agreement decide that it is in their interest, courts ought to defer to that judgment.

In this case, about 80% of the minority shares (i.e. excluding Musk and his brother’s shares) voted to ratify the compensation agreement. The question, then, is whether their vote was adequately informed.

Chancellor McCormick focused on representations about the process by which the board adopted the compensation agreement. The proxy statement described the board members as independent, when Chancellor McCormick concluded that they were not. The proxy statement mentioned the use of a compensation consulting firm, but did not mention that it appeared to work to justify the compensation package, not to inform the board as to what a reasonable compensation package would look like. And perhaps most importantly, several early (unreleased) drafts of the proxy statement accurately described Musk’s role in developing the initial terms of the compensation agreement, while the final released version at best misleadingly described the package as having been developed by the independent directors who served on the Compensation Committee. The proxy statement also described the milestones as all being challenging and difficult to achieve, while internal estimates stated that the first three milestones were 70% likely to be achieved within the beginnings of the grant. And while Chancellor McCormick did not focus on this point, I also found it telling that I was unable to find any proxy language that pointed out that Musk had no requirement to remain focused on Tesla as long as he retained the appropriate positions/titles.

In light of these statements, which range from misleading to false, Chancellor McCormick concluded that the minority shareholder vote was not a properly informed vote. Without being properly informed, the minority shareholder vote had no legal effect. And therefore, the Chancellor then proceeded to evaluate whether the compensation package met the standard of “entire fairness,” with the burden of proof born by the defendants.

The Agreement Did Not Pass Fairness Review

Once the court was free to evaluate whether the agreement was fair without presumptions in favor of the challenged action, it’s unsurprising that Chancellor McCormick concluded that it was not. The compensation package was enormous, vastly larger than any other package in history. Many of Musk’s peers (superstar CEOs with large equity stakes in the companies that they run) do not receive any compensation at all, relying on the increase in the value of their stake as incentive. Chancellor McCormick focused on whether the compensation package was necessary to incentivize Musk to care and focus on increasing the value of Tesla, and concluded that it was not — in light of his greater than 20% stake, he already stood to benefit to an enormous degree if he were able to grow Tesla’s market cap from about $50 billion to the nearly $600 billion that it is today (let alone the $1.2 trillion peak). Indeed, that stake was already large enough to make Musk the richest person on the planet if he reached those milestones. And again, nothing in the agreement limited Musk’s ability to engage in the sort of misguided nonsense that he has, in fact, engaged in, diverting his attention to other businesses right as Tesla faces new and more meaningful competition in the EV market. In light of those factors, the court concluded that, even though the package required the achievement of remarkable growth and only gave Musk a fraction of that growth, it was not fair.

I in general agree with Chancellor McCormick’s conclusion here. However, I do want to disagree with one aspect. She suggests that Musk’s stake already gave him sufficient incentive to want to grow Tesla without needing additional compensation. While that is in some ways true in terms of incentives, that creates a degree of unfairness.

I was once a major equity holder in a small business in which the various equity holders all worked for the firm. When I stopped working for the firm, it was fair that the members who continued to work for the firm would receive compensation for building the firm, beyond the salary that they were already paid. They already had substantial incentive to grow the firm — after all, they owned roughly two-thirds of the equity. But it would not be fair to put us all on an equal footing, when they were still working for the firm and I was pursuing other interests. And more generally, being compensated for your work is a reasonable criterion for fairness. The fact that Musk may not have needed an incentive to work for Tesla in light of his large equity stake doesn’t mean that compensating him for the value he provides to Tesla by continuing to work actively is unfair. And in light of Chancellor McCormick’s conclusions agreeing with the board that Musk provided tremendous value, her conclusion that he should have been willing to do that without any direct compensation, benefiting only by increasing the value of his existing stake, seems to me wrong.

That said, trying to measure what level of compensation would be fair (and meaningful) is extraordinarily hard. Nobody would blink if Musk were paid a few million dollars per year as Tesla’s CEO… but it would also amount to a rounding error for a centibillionaire. And by the time the compensation package becomes actually meaningful for Musk’s wealth, it shoots well beyond what seems reasonable. In any event, because of the other aspects that made the deal unfair, we don’t need to figure out what would have been fair.

All told, I agree with Chancellor McCormick’s overall conclusion. In particular, I might well think otherwise if Tesla had actually secured a majority of Musk’s attention. But they didn’t — they got the same thing they would have gotten without any compensation beyond his equity holding: Musk spent his time and energy working on Tesla when he wanted to and felt like it was in his interest to do so, and when he was more interested in other matters, he spent his time on those instead of on Tesla. That meant that Tesla functionally paid Musk billions but got no actual commitments or involvement in exchange. The deal would be grotesquely large either way, but if Musk actually had to do what the board and shareholders wanted — to put Tesla first — then it might still be a fair exchange, in which they paid tens of billions to earn hundreds of billions. But because they actually got very little for those tens of billions, even as a business matter (leaving aside the question of the societal interest in equality and such) the deal was unfair.

Recission Was an Appropriate Remedy

While Chancellor McCormick concluded that she had flexibility to adopt an appropriate remedy, she ultimately went with the remedy the plaintiff requested: recission of the entire deal. Because the deal was unfair and the process was not adequate to protect it from court review, she unwound the deal in its entirety. Again, I find this to be a fair conclusion. Tesla can adopt a new compensation package, but they’ll have to start over. I also suspect that they will be largely unable to compensate Musk for his work between the time of the agreement and today, because he’s already done that work and can’t be incentivized to do more, but I’m not certain — perhaps a retrospective bonus, properly adopted, would still be valid.

This isn’t necessarily the final word. Musk and co. can and likely will appeal this decision to the Delaware Supreme Court (although not to the U.S. Supreme Court, because there are no substantial federal legal issues involved). They can also draft a new compensation package and seek the approval of the minority shareholders for that package. And Musk may, as he has announced his intention to do, move Tesla from being a Delaware corporation to being a Texas corporation. The only last point I want to make about that is that when you conclude that Delaware corporate law is insufficiently favorable to the corporations you’ve really lost touch with reality. But then, that describes a lot of Musk’s actions in the last few years, and even he said that he expected to work for Tesla for his whole life or until he became “too crazy.”