Tesla called the ruling “wrong” and pledged to appeal.
“If this ruling is not overturned, it means the judge and plaintiffs’ attorneys will run the Delaware corporation rather than its rightful owners, its shareholders,” the Delaware company said in a post on X.
Judge McCormick said the pay package would be the largest ever for the head of a listed company.
She said Tesla failed to prove its pay package, which has been in place since 2018, is fair.
A shareholder vote on the pay last June passed 75%, but the judge disagreed that the pay should be too high, despite “creative” arguments from Tesla’s lawyers.
“Even if a shareholder vote could have a ratification effect, it cannot do so here,” she wrote in her opinion.
The judge also ruled that Tesla shareholders who filed suit against Tesla and Musk should receive $345 million in fees, but not the $5.6 billion in Tesla stock they had requested.
Some observers said a ruling in favor of Musk and Tesla would deal a blow to Delaware’s conflict of interest laws.
“The idea of the dispute rule is to protect all investors, not just minority investors,” said Charles Elson of the University of Delaware’s Weinberg Center for Corporate Governance.
Mr. Elson said Judge McCormick’s opinion was sound.
“The board was not independent, the process was dominated by the CEO and the package was well outside the bounds of what was reasonable,” he said. “What a combo.”
Mr. Elson said he expects the company could try to restructure a similar pay package in Texas, where it moved its legal footing earlier this year after the pay ruling.
