In a groundbreaking ruling on Tuesday, a Delaware judge declared that Elon Musk's colossal $56 billion pay package for Tesla could potentially be overturned, deeming it an unjustifiable sum that did not serve the best interests of the company's shareholders. This decision sent shockwaves through the market, causing Tesla's shares to plummet by 3.7% in after-hours trading. The judge's verdict effectively nullified the most substantial compensation plan in corporate America to date, highlighting concerns about the board's apparent deference to their high-profile CEO and their eagerness to grant him a stake in the company's astronomical growth.

Kathaleen McCormick, presiding over Delaware's Court of Chancery, criticized the Tesla board's lack of scrutiny when negotiating the pay plan, stating, "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?" McCormick's scathing opinion instructed the Tesla shareholder who had challenged the pay package to collaborate with Musk's legal team to implement the court's decision.

Interestingly, Musk himself had previously expressed dissatisfaction with Delaware's legal jurisdiction, advising entrepreneurs against incorporating their companies in the state. In a post on X, the social media platform he acquired in 2022 (formerly known as Twitter), Musk stated, "Never incorporate your company in the state of Delaware." This comment alludes to his decision to relocate the state of incorporation for X from Delaware to Nevada following his acquisition. Musk's lawyer has yet to respond to requests for comment on the recent ruling.

The victory for the Tesla shareholder, Richard Tornetta, who initiated the lawsuit in 2018, was met with celebration from his attorney, Greg Varallo, who described it as a "good day for the good guys." However, the ruling is not final and can still be appealed to the Delaware Supreme Court.

The judge's opinion, spanning a staggering 201 pages, shed light on the exorbitant size of Musk's compensation plan, emphasizing its unfathomable magnitude. McCormick wrote, "The incredible size of the biggest compensation plan ever - an unfathomable sum - seems to have been calibrated to help Musk achieve what he believed would make 'a good future for humanity.'" During the compensation trial in November 2022, Musk himself testified that the funds would be used to finance interplanetary travel, stating, "It's a way to get humanity to Mars, so Tesla can assist in potentially achieving that."

This pay package plays a significant role in Musk's vast fortune, which ranks among the world's largest. Tesla's directors argued throughout the week-long trial that the company needed to offer such substantial compensation to ensure the continued dedication of one of the world's most dynamic entrepreneurs to the electric-vehicle manufacturer. However, the judge's ruling has cast doubt on the necessity and fairness of such an astronomical pay package, leaving Tesla and its shareholders in a state of uncertainty as they await potential appeals and further legal developments.