Yahoo! Finance reported in June that Tesla shareholders overwhelmingly voted to approve a record-breaking compensation package for company CEO Elon Musk.

The move came after a Delaware judge ruled that a similar package was "unfathomable." However, the same judge just ruled against Musk again, prompting a fight which could lead to the Supreme Court. 

Musk agreed to forgo a salary in exchange for stock options

According to Reuters, the controversy revolves around a 2018 deal under which Musk would forgo a salary and instead be paid $56 billion worth of stock options if Tesla reached a set of financial and operational goals.

However, the arrangement was subsequently challenged by shareholders, with Kathaleen McCormick of Delaware's Court of Chancery agreeing with their objections.

"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?" she wrote.

McCormick concluded that Musk had an undue degree of influence over the board which approved his compensation package.

Judge once again disallows pay deal

"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,'" she declared.

While Tesla attempted to rectify the problem by putting Musk's pay agreement to a vote, McCormick nevertheless ruled against it.

"[A] stockholder vote standing alone cannot ratify a conflicted-controller transaction," Yahoo! Finance quoted her as writing in her decision on Monday.

For its part, Tesla quickly reacted by criticizing the judge's ruling in a post on X, the social media company which Musk also owns.

Analyst says case may end up with America's highest judicial body

"A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay [Elon Musk] what he’s worth," the company complained.

A Delaware judge just overruled a supermajority of shareholders who own Tesla and who voted twice to pay @elonmusk what he’s worth.

The court’s decision is wrong, and we’re going to appeal.

This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware…

— Tesla (@Tesla) December 2, 2024

"The court’s decision is wrong, and we’re going to appeal. This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners – the shareholders," it added.

Tesla is not alone in condemning McCormick's decision, as Dan Ives did so as well. Ives serves as managing director at Wedbush Equity Research, and he predicted a protracted legal battle.

"We continue to believe Tesla and Musk will fight this tooth and nail all the way to the Supreme Court in Delaware and then potentially to the federal system as this remains a frustrating headache for Tesla, Musk, and its shareholders," Yahoo! Finance quoted Ives as saying on Tuesday.