Elon Musk’s unprecedented $1 trillion compensation package has now crossed the threshold from bold proposal to tangible reality—and Tesla appears unwavering in its determination to preserve this monumental arrangement. In a decisive move emblematic of shareholder confidence and corporate ambition, investors approved the record-shattering pay structure with an overwhelming 75% majority vote on Thursday. This endorsement effectively positions Musk, should he meet a series of formidable performance objectives spanning advanced product innovation and substantial financial milestones, to become the first individual in history to achieve trillionaire status.
This milestone follows a turbulent legal saga surrounding Musk’s prior $56 billion incentive plan—initially sanctioned by Tesla’s shareholders in both 2018 and 2024—only to be nullified by a Delaware judge the previous year after an investor-led lawsuit challenged its propriety. That court ruling raised critical questions about corporate independence and fiduciary oversight, particularly emphasizing Musk’s close personal associations with certain board members and the board’s insufficient justification for determining the valuation of his immense remuneration.
Determined to forestall any repetition of that judicial setback, Tesla has since undertaken a calculated series of strategic and legal maneuvers designed to secure the new plan against similar scrutiny. Central to these efforts was the company’s decision to formally relocate its legal domicile from Delaware to Texas, a measure approved by shareholders during the 2024 annual meeting. This relocation was swiftly followed by legislative developments in Texas that appear to have bolstered corporate defenses against shareholder litigation. In May, the state enacted Senate Bills 29 and 1057—laws that considerably constrain the ability of minority shareholders to legally contest the actions of a corporation’s leadership.
Specifically, SB 29 imposes a stricter evidentiary threshold, requiring plaintiffs to prove not only that directors acted without good faith but also that fraudulent conduct or explicit legal violations occurred. Moreover, the bill introduced a new prerequisite stipulating that individuals or groups must possess at least 3% of a company’s outstanding shares to initiate a derivative lawsuit. While the statute does not automatically apply to every corporation operating within Texas, Tesla promptly embedded this requirement within its corporate bylaws, effectively fortifying itself against smaller-scale legal challenges. Considering that only Musk and a few sizeable institutional investors—such as BlackRock and Vanguard Group—command ownership stakes exceeding that 3% benchmark, the resulting legal barrier is formidable. Though shareholders theoretically could pool their holdings, the combined figure required, roughly equivalent to $42 billion in stock, presents an almost insurmountable financial obstacle.
This stark contrast is especially evident when one recalls the origins of the Delaware case that invalidated Musk’s earlier pay plan. That lawsuit was initiated by Richard Tornetta, a former heavy metal drummer who, at the time of filing, possessed a mere nine shares of Tesla stock. Despite his minimal stake, the Delaware Court of Chancery ruled decisively in his favor, determining that the board exhibited insufficient independence from Musk and failed to fully substantiate the rationale behind his vast $56 billion compensation figure.
In Texas, however, legal experts now contend that replicating such a case would be vastly more challenging, if not practically impossible. Professors of law who spoke with Business Insider emphasized that the modified Texas legal environment significantly favors corporate directors by curbing the frequency and scope of derivative actions. William Magnuson of Texas A&M University described potential litigation as facing “a very hard road,” noting that the new statutory framework grants directors a heightened level of legal protection. He added that these regulatory changes, taken collectively, drastically narrow shareholders’ ability to challenge possible misconduct by boards or executives.
James Spindler, who teaches corporate and securities law at the University of Texas, offered a parallel assessment. He acknowledged that while Tesla shareholders theoretically retain some capacity to scrutinize disclosures surrounding the compensation plan—as Tornetta successfully did in Delaware—the newly established 3% ownership threshold renders such legal challenges exceptionally improbable. For major public corporations with enormous market capitalizations, he observed, there are simply too few individual or institutional investors who hold that level of equity. “For a company of Tesla’s scale,” Spindler remarked, “the likelihood of meeting that threshold is exceedingly low, effectively ending the matter before it can begin.”
Musk, responding to the Delaware court’s invalidation of his previous package, publicly urged other corporations to reconsider their incorporation within the state—a call that was swiftly heeded by several enterprises, including those under his own leadership such as SpaceX. In the wake of Tesla’s high-profile departure, Delaware amended its corporate statutes to impose additional hurdles on small shareholders attempting to bring derivative suits, signaling the state’s recognition that its once-celebrated business-friendly reputation was being tested. Meanwhile, rival jurisdictions like Texas and Nevada have sought to attract large companies by promoting their own pro-director frameworks, thereby igniting competitive reform aimed at redefining corporate law across the United States.
Magnuson suggested that these coordinated movements among states may herald a transformative period for U.S. corporate governance. He characterized the current moment as “the beginning of a real sea change,” in which businesses strategically migrate toward jurisdictions whose legal codes provide greater managerial autonomy and more constrained shareholder oversight. In this shifting landscape, Tesla’s steadfast defense of Musk’s trillion-dollar compensation blueprint does not merely reflect an internal corporate struggle—it stands as an emblem of a broader, systemic realignment in how American law balances innovation, executive authority, and shareholder accountability.
Sourse: https://www.businessinsider.com/tesla-elon-musk-pay-package-defend-lawsuits-texas-delaware-trillion-2025-11
