Elon Musk lost his Tesla pay fight. Here’s what he can do next.

Elon Musk’s pay package was struck down for the second time on Monday.

Elon Musk’s battle over his Tesla pay is entering a new phase.

A Delaware judge ruled on Monday that Tesla’s shareholder vote wasn’t enough to pass Elon Musk’s $55 billion compensation package.

Tesla called the decision “wrong” and said it would appeal.

“This ruling, if not overturned, means that judges and plaintiffs’ lawyers run Delaware companies rather than their rightful owners — the shareholders,” Tesla wrote in a post on X.

So what happens next?

If Tesla files an appeal, the Delaware Supreme Court will review the decision of Delaware Chancery Court Judge Kathaleen St. J. McCormick, who maintained her earlier ruling that struck down the pay package on the grounds that Musk could have influenced Tesla’s board members, to whom he had close ties.

Mathieu Shapiro, the managing partner at Obermayer, told B-17 that appeals processes often take a year or longer.

Shapiro, who’s also a member of Obermayer’s litigation department and focuses on business and commercial litigation, said the case would ultimately have to balance Delaware’s freedom for companies to self-govern with concerns about excessive payouts and Musk’s status as one of the most successful businessmen.

While appeals are generally difficult to win, Shapiro said Musk’s case was “novel” and contained unpredictable elements. One issue that might come up is whether Musk influenced the negotiations over his Tesla pay package, as the trial judge suggested in her initial ruling, he said.

“Little law addresses executive compensation, let alone what seems to be the largest-ever compensation deal at a US public company,” Shapiro said.

Given that Musk’s pay package was set to be the largest ever for a CEO, there aren’t many cases to turn to for direct precedent.

Anat Alon-Beck, a business-law professor at Case Western Reserve University, told B-17 one case that stands out is the 2015 Delaware Chancery Court decision ruling against Mark Zuckerberg’s attempt to ratify board actions related to Facebook’s 2010 acquisition of Instagram.

Alon-Beck, who used to work as a mergers-and-acquisitions attorney for tech companies and also specializes in Delaware deal law, said Zuckerberg didn’t follow the proper procedural requirements mandated by state law. The case demonstrates that even controlling shareholders need to comply with the legal procedures for ratifying board decisions, he added.

“When you know Delaware law, you know that stuff like that is just not going to fly,” Alon-Beck said.

The Columbia law professor Dorothy Lund used to clerk for a Delaware Supreme Court justice and US Court of Appeals judge. She told B-17 that Delaware was also “in a weird spot” because Tesla reincorporated from Delaware to Texas in June, and Musk has repeatedly spoken out about Delaware courts (he called the ruling “absolute corruption” on Monday).

While these decisions aren’t supposed to be influenced by concerns around public perception, Lund said Musk’s behavior hadn’t been the most strategic.

“Delaware now has to worry about looking like, well, if we reverse, do we just look like we got cowed by Elon Musk?” Lund said.

Reintroducing the pay package in Texas

Prior to the shareholder vote, Tesla’s board chair, Robyn Denholm, said in June that the board had considered introducing a new pay plan if the shareholder vote didn’t pass — an option she said would cost shareholders.

If Tesla created a new plan with the same stock grants, it would cost tens of billions in stock-based compensation today. That’s because the compensation tied to the original package was worth an estimated $2.3 billion in stock, and it’s already been paid out.

Alon-Beck told B-17 a new compensation package in Texas would make the most sense.

“I would do a new vote in Texas, under Texas law, and I would authorize a new compensation package,” Alon-Beck said, adding that the old package wouldn’t be able to be authorized because of a conflict of laws.

Shapiro said he thought it would be “very difficult” to draft the same package in Texas, noting that the original plan goes back to 2018 and was based on specific targets and Tesla’s stock price in 2018.

Shapiro said Musk’s decision to appeal or reintroduce the package in Texas depended on multiple factors — and underlying motivations.

While it may be all about the money, the case may also signify more about public companies in the US and the way in which shareholders and courts can interfere with management’s plans.

“Or is it about his public persona and his reputation and how those things are understood in future business dealings,” Shapiro said. “If he were my client, I would have a discussion about all of those things before deciding what path forward was best for him.”