Tesla CEO Elon Musk’s massive $56 billion pay package was approved by shareholders during the company’s annual meeting Thursday.

“Hot damn, I love you guys,” Musk said to a cheering room of Tesla shareholders and employees minutes after his pay package was approved.

Two measures were approved during the annual meeting — Musk’s pay package and moving the car maker’s incorporation state from Delaware to Texas.

Originally approved by shareholders in 2018, the record-breaking compensation package comprising 303 million stock options at a discounted price was previously worth as much as $56 billion in Tesla stock. It was struck down by a Delaware judge earlier this year and shrunk in value to $44.9 billion in April 2024 due to a decline in Tesla’s share price.

The sheer size of the proposed compensation package was eye-catching. Even for Musk, whose net worth sits at a staggering $212.8 billion, according to Forbes, the proposed payout represents a significant chunk of his current wealth.

The June 13 Tesla shareholder vote was controversial, facing backlash from some investors while galvanizing intense advertising campaigns by Musk and Tesla.

But the story isn’t over yet. The recent vote doesn’t undo the legal decision that nixed Musk’s pay package earlier this year. It’s more of a vote of confidence than a vote to actually increase the CEO’s pay.

A controversial pay package six years in the making

While contested board elections aren’t uncommon – a failed activist takeover at the Disney board of directors took place earlier this year – public battles over CEO pay packages are rare.

So how did Musk’s compensation become headline news?

Back in 2018, shareholders approved Musk’s pay deal, with 73 percent voting in favor. However, a Delaware court chancellor later invalidated the package in January 2024. The judge, Kathaleen McCormick, ruled that the process used by Tesla’s board to create the plan was unfair to shareholders.

She particularly criticized the board for its close ties to Musk, questioning their ability to act in the best interests of shareholders. The board committee designing the package included Antonio Gracias, a close friend of Musk, and Todd Maron, Musk’s former divorce lawyer.

Musk used the June 13 shareholder meeting as a symbolic gesture to prove investors still believe the package they approved six years ago is fair.

In the weeks leading up to the June 13 vote, Musk and his supporters mounted advertising efforts to gather shareholder support for the vote, including launching a dedicated website to persuade investors.

Musk also declared he had won the shareholder vote “by wide margins” on social media site X the night before voting closed.

But opposition from some shareholders also mounted ahead of the vote. Many took to social media to voice their disapproval of Tesla’s recent performance, casting a big share of the blame on Musk.

Tesla’s stock price skyrocketed nearly 1,700 percent between approval of the original pay package in 2018 and late 2021. But the stock price has since made a dramatic reversal, shedding more than half its value, including nearly 27 percent so far this year. Tesla lost its status as a trillion-dollar company in the process.

Missed sales targets, supply chain disruptions and a lack of new EV model launches have been weighing the company down.

Will the pay package help keep Musk’s attention on Tesla?

In filings with the SEC, Tesla contends that the proposed compensation package for Musk is essential to ensuring his continued dedication to the company’s leadership.

The filing cited a “desire to incentivize and motivate Mr. Musk to continue to lead Tesla over the long term and to create significant stockholder value in doing so” through the proposed award.

Given Musk’s extensive portfolio — including his roles as CEO of SpaceX, Neuralink and The Boring Company, as well as his ownership of X (formerly Twitter) — Tesla board members argue that a substantial incentive structure is necessary to keep Musk invested in Tesla’s future.

What’s next for Musk and Tesla?

While the shareholder vote serves as a show of support for Musk, it might be a moot point.

Tesla hopes to use shareholder approval as leverage to challenge McCormick’s ruling. Their argument hinges on the idea that shareholders have now “ratified” the proposal, rendering previous concerns about its approval process irrelevant.

However, the vote itself is non-binding, and the Delaware court remains the ultimate authority. It’s uncertain whether McCormick or an appeals court will even consider the shareholder vote.

Ultimately, the legal battle surrounding Musk’s compensation appears far from over.

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