By: Olivia I. Scholl
I. Tornetta v. Musk
In 2018, Tesla, Inc.’s board of directors approved an incentive-based compensation plan for its chief executive officer, Elon Musk.1 The compensation plan, originally valued at almost $56 billion2, was approved by 73 percent of Tesla shareholders with the contingency Musk increases Tesla’s market capitalization from $50 billion to $650 billion over the course of 12 tranches.3 Despite meeting all goals required by the compensation plan, Musk failed to exercise any stock options.4
A. Tornetta I
In 2019, Tesla stockholder Richard Tornetta filed a derivative lawsuit against Tesla alleging Tesla directors breached their fiduciary duties by approving Musk’s compensation plan.5 Tesla argued Musk’s compensation package was necessary to keep Musk focused on Tesla, as opposed to Musk’s other business ventures, like SpaceX.6 Ultimately, the court eliminated all compensation provided to Musk by the compensation plan, holding the lack of director independence and the presence of potential conflicts of interests due to excessive director compensation undermined the integrity of the board’s approval process.7
In support of its decision to eliminate Musk’s compensation plan, the Court relied upon several factors to illustrate Musk’s control over the decision-making process of Tesla’s board.
First, Musk owned 21.9 percent of Tesla’s common stock8, giving him an advantage due to Tesla’s supermajority voting requirement and deeming Musk a controlling stockholder.[NP1]9
Secondly, the Court considered Musk’s significant managerial authority and frequent instances of acting without board oversight or approval, ultimately creating a new category of “Superstar CEOs” under Delaware law.10 The presence of such Superstar CEOs is likely to render even the most independent actors unduly deferential due to their dominance and expansive influence over the board.11
Third, the court relied upon Musk’s close business and personal relationships with Tesla’s board. Of the four members on the compensation committee, two had both extensive business and personal ties to Musk and the other two were indebted to Musk as a result of their “life-changing” Tesla director compensation.12 Further, only one director was found to be independent, while the remaining directors were Musk himself, his brother, and his long-time friend.13 The court also emphasized the fact that Tesla’s general counsel was Musk’s former divorce attorney, who became emotional while testifying about Musk during a deposition.14
The court also held the stockholder vote was not fully informed because the proxy failed to disclose the personal connections between Musk and members of the compensation committee, the level of control Musk exercised over the process of finalizing the compensation plan, and a conversation Musk had with a director in 2017 regarding the key terms of the compensation plan.15
As a result, the court concluded this was a conflict-controller transaction that required the entire fairness standard of review and wholly eliminated Musk’s compensation plan,16 underscoring the dangers of a board failing to bargain for an outcome that is in the best interest of its shareholders, not a “Superstar CEO.”
B. Tornetta II
Following the court’s decision in Tornetta I to eliminate Musk’s compensation plan entirely, Tesla provided additional disclosures and held another shareholder meeting where 77 percent of shareholders ratified and approved the same compensation plan, despite the court’s decision.17 Subsequently, Tesla requested the court reverse its decision in Tornetta I and allow the reaffirmed compensation plan to take effect.18 The court denied this request, holding a post-trial ratification of the compensation plan could not overturn an earlier ruling.19
II. Potential Effect on Executive Compensation Cases in Delaware
In most cases, Delaware courts are highly deferential to board decisions, especially given the fact that the issue of executive compensation is inherently a business decision.20 However, the Court of Chancery’s decisions in Tornetta I and II reversed the Tesla board’s decision to award Elon Musk an astronomically high-value compensation plan, effectively creating precedent that will impact future executive compensation litigation brought in Delaware.
Litigants bringing executive compensation litigation in Delaware likely can expect all aspects of an independent director’s relationship and/or connections to the executive to be scrutinized heavily in an attempt by courts to determine the director’s objectivity.21 In Tornetta I, the court focused on Musk’s personal and business relationships with members of the compensation committee, highlighting how these relationships undermined the board’s process of reviewing Musk’s compensation plan.22 Further, the court expressed concern regarding the committee’s collaborative approach, rather than conducting the process as an arm’s-length negotiation, holding the board did not act in the best interests of its shareholders.23
Once it has been determined that a stockholder is controlling, it is likely a court will look for evidence of a “controlled mindset,” where a director favors cooperation over an actual bargaining process.24 The court in Tornetta I found Musk was “dominating” despite having holdings that were well below 50 percent.25
Finally, it is likely Tornetta I and II have emphasized the expectation that compensation committees are to act as an actual check on an executive’s compensation expectations.26 It is clear Delaware courts expect an actual negotiation to occur, as the committee and the executive are not on the same side of the table – the committee must act in the best interest of the shareholders.27
III. Conclusion
In light of the Delaware Court of Chancery’s rulings in Tornetta I and II, it appears a new category of “Superstar CEOs” has been created under Delaware law, recognizing such executives with extraordinary influence can cause even the most independent directors to act with compromised objectivity. In the future, courts may be more skeptical and invoke more scrutiny in cases where these executives possess Musk-level influence as it relates to independence, process, and disclosure issues.
About the Author
Olivia is a third-year law student at Widener University Delaware Law School and is the Styles Editor for Volume 51 of the Delaware Journal of Corporate Law. She graduated from Albright College in 2022, earning a dual major bachelor’s degree in international relations and political science. While in law school, Olivia interned for the legal department at EnerSys World Headquarters and is currently a law clerk for Morgan, Akins & Jackson, PLLC in Philadelphia, Pennsylvania. After graduating from law school, Olivia will continue handling general liability and workers’ compensation defense matters in Pennsylvania and New Jersey at Morgan Akins.
1 Tornetta v. Musk (Tornetta I), 250 A.3d 793, 796 (Del. Ch. 2019).
2 Now currently valued at around $100 billion.
3 Anat Alon-Beck & Sophia Fisher, Musk’s Trillion-Dollar Pay Case Rewrites Corporate Board Rules, BLOOMBERG LAW (Oct. 14, 2025, 4:30 AM), https://news.bloomberglaw.com/legal-exchange-insights-and-commentary/musks-trillion-dollar-pay-case-rewrites-corporate-board-rules.
4 Gail Weinstein et al., Implications of Tornetta v. Musk II for Executive Compensation Stockholder Ratification, HARV. L. SCH. F. ON CORP. GOVERNANCE (Feb. 15, 2025), https://corpgov.law.harvard.edu/2025/02/15/implications-of-tornetta-v-musk-ii-for-executive-compensation-and-for-stockholder-ratification/.
5 Tornetta I, 250 A.3d at 801.
6 Id. at 803.
7 Id. at 811-12; see also Andrea Olofson Chen, Compensated to the Moon: The Impact of Excessive Compensation on Director Independence Post Tornetta v. Musk, 76 U.C. L. J. 947, 959-60 (2020), https://hastingslawjournal.org/wp-content/uploads/I-Note-Olofson-Chen.pdf.
8 Id. at 801.
9 Deborah S. Birnbach et al., Delaware Court of Chancery Rescinds Elon Musk’s $55.8 Billion Compensation Package in Cautionary Tale Abou Independence and Executive Compensation, GOODWIN (Feb. 6, 2024), https://www.goodwinlaw.com/en/insights/publications/2024/02/alerts-practices-pca-delaware-court-of-chancery-rescinds-elon.
10 Id.
11 Id.
12 Id.
13 Birnbach et al., supra note 9.
14 Id.
15 Id.
16 Ilan Katz et al., Delaware Court of Chancery Strikes Down Elon Musk’s $55.8 Billion Equity Compensation Package from Tesla, DENTONS (Feb. 21, 2024), https://www.dentons.com/en/insights/alerts/2024/february/21/delaware-court-of-chancery-strikes-down-elon-musks.
17 Alon-Beck & Fisher, supra note 3.
18 See generally Tornetta v. Musk (Tornetta II), 310 A.3d 430 (Del. Ch. 2024).
19 Alon-Beck & Fisher, supra note 3.
20 Weinstein, supra note 4.
21 Katz, supra note 16.
22 Id.
23 Id.
24 Id.
25 Katz, supra note 16.
26 Id.
27 Id.
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