Musk's $29 Billion Tesla Pay Deal: Averting 'Dexit' Amid Legal Tangle

Tesla's Board Offers Musk $29 Billion 'Good Faith' Package Amid Legal Tangle Over Prior Compensation

Palo Alto, CA - Tesla's board has presented a new compensation plan for Elon Musk valued at roughly $29 billion, dependent on his continued leadership for at least two years and a five-year holding period for the shares. This development, disclosed in October 2025, serves as an interim measure while a massive legal fight over his rescinded 2018 pay package, originally pegged at $56 billion, proceeds in the Delaware Supreme Court.

The proposal underscores Tesla's strategic need to keep Musk onboard, especially amid fierce global competition for artificial intelligence (AI) talent. Unlike his earlier controversial package, this fresh offer is not linked to market-capitalization milestones. Crucially, it formally requires Musk's ongoing tenure at the electric-vehicle (EV) manufacturer. Shareholders are slated to vote on the new plan in November 2025.

The Stalemate Over Musk's 2018 Compensation

Musk's original 2018 pay package, which could now be worth close to $120 billion thanks to Tesla's stock surge, has been caught up in judicial review for years. Delaware Chancery Judge Kathaleen McCormick initially struck down the package in January 2024, finding it was not fairly negotiated. She re-blocked it in December 2024, despite a later shareholder vote intended to reaffirm the agreement.

Tesla's board, led by Chair Robyn Denholm and board member Kathleen Wilson-Thompson, explained their rationale for the new proposal in a letter to shareholders, stating: "We are confident that this award will incentivize Elon to remain at Tesla and focus his unmatched leadership abilities on further creating shareholder value for Tesla shareholders and attracting and retaining talent at Tesla." They added, "To be clear, losing Elon would not only mean the loss of his talents but also the loss of a leader who is a magnet for hiring and retaining talent at Tesla."

The board explicitly noted that this new "good faith" payment would prevent any "double dip" should the original 2018 package eventually be upheld by the Delaware Supreme Court. If the Supreme Court sides with the lower court's rejection, this $29 billion deal would become void.

Strategic Implications and "Dexit"

The legal proceedings carry significant ramifications beyond Tesla, influencing corporate governance in Delaware, historically a favored jurisdiction for business incorporation. Tesla's attorney, Jeffrey Wall, argued before the Delaware Supreme Court in October 2025 that the 2024 shareholder vote to restore Musk's original payday was "the most informed stockholder vote in Delaware history." Tesla is seeking to overturn McCormick's rulings, which held that the company's board lacked independence from Musk during the 2018 negotiations and that shareholders were not fully informed.

The controversy surrounding the pay package and the perceived hostility of Delaware courts toward "powerful entrepreneurs" have sparked a phenomenon dubbed "Dexit," where several companies, including Tesla itself, have redomiciled to states such as Texas or Nevada, which are viewed as more accommodating to corporate boards. Tesla completed its reincorporation to Texas in late 2024.

Tesla directors argue that the 2018 pay package successfully motivated Musk, turning Tesla from a fledgling startup into one of the world's most valuable firms. They contend that Judge McCormick erred by applying an overly strict legal standard rather than the "business judgment" rule, which normally shields board decisions from judicial second-guessing.

Musk's Broader Engagements and Tesla's Outlook

The board's urgent push to keep Musk comes amid his wide-ranging ventures and political activities. During 2024, Musk's involvement in the Trump administration, including a role in cost-cutting efforts within the Department of Government Efficiency, initially lifted Tesla's stock, as investors anticipated possible benefits for his companies. Yet his polarizing public profile and later disputes with President Trump, especially over government subsidies, generated investor unease and weighed on Tesla's share price.

In late July 2025, Musk publicly acknowledged that Tesla could face a "rough" couple of quarters after the company reported a 16 percent dip in earnings. Nevertheless, he expressed optimism for 2026, shifting the firm's focus increasingly toward artificial intelligence and robotics. The new $29 billion package is expected to generate accounting charges of $25 billion or more, reflecting the company's determined effort to secure Musk's continued dedication to these strategic shifts.

The Delaware Supreme Court typically takes several months to issue rulings, leaving Tesla and Musk in a state of pending resolution regarding the record-setting 2018 compensation. Meanwhile, the legal team for Richard Tornetta, the shareholder who held just nine Tesla shares when he launched the lawsuit, awaits a decision on the $345 million in legal fees ordered by Judge McCormick.

This new compensatory framework represents Tesla's strategic response to both the judicial challenges and the need to preserve Musk's singular focus at a pivotal moment for the company, which now confronts mounting competition from Chinese rivals in key EV markets despite a softening overall demand.