Delaware Supreme Court Reinstates Tesla CEO Compensation Plan
December 23, 2025
Publication| Corporate & Chancery Litigation| Corporate Transactions| Corporate Governance
On December 19, 2025, the Delaware Supreme Court issued its highly anticipated opinion in In re Tesla, Inc. Derivative Litigation, reversing the Chancery Court’s order of rescission and reinstating the 2018 incentive compensation package for CEO Elon Musk that Tesla’s stockholders had ratified. The Supreme Court found that the lower court’s remedy of equitable rescission, which is intended to restore the status quo ante, was inappropriate, given that Musk had worked for six years and achieved the market capitalization and operational targets required for all of the award’s tranches to vest. Noting that equitable rescission is an “extreme remedy,” the Supreme Court observed that it should be granted only where “‘clearly warranted.’” As the plaintiff had offered no alternative form of relief, the Supreme Court ordered nominal damages in the total amount of $1.
The Supreme Court recognized, as the Company had acknowledged, that plaintiff’s counsel was entitled to a fee based on quantum meruit in light of the award of nominal damages, and significantly reduced the $345 million fee the Chancery Court had entered. Rather than remanding the matter, the Supreme Court adopted the defendants’ position that the fee award should be based on a 4x multiple of the plaintiff’s counsel’s lodestar (i.e., the number of hours invested in the case multiplied by a reasonable hourly rate).
Richards, Layton & Finger was retained after the Chancery Court’s original ruling to join a team of Tesla’s outside counsel advising on its proposal to ratify the compensation package, opposing plaintiff’s counsel’s request for a fee consisting of over $5 billion in Telsa shares, and prosecuting its appeal to the Supreme Court, with Rudolf Koch, John Hendershot and Kevin Gallagher leading the RLF team that assisted in guiding the effort toward the Supreme Court’s well-reasoned and commercially sensible ruling.