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In January, Chancellor Kathaleen St. Jude McCormick ruled that Musk is not entitled to the landmark stock compensation that was to be granted over 10 years.

Ruling on a lawsuit from a shareholder, she voided the pay package, saying that Musk essentially controlled the board, making the process of enacting the compensation unfair to stakeholders. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf,� she wrote in her ruling.

But in a letter to shareholders released in a regulatory filing on Wednesday, Chairperson Robyn Denholm said that Musk has delivered on the growth it was looking for at the automaker, with meeting all of the stock value and operational targets in the 2018 package that was approved by shareholders. Shares are up 571% since the pay package began.

“Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value,� Denholm wrote. “That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.�

In the filing, Tesla said it intends to appeal the decision. If shareholders approve the new package, disclosure and procedural deficiencies and breaches of the board's fiduciary duty detailed by McCormick should be fixed, the filing said.

But Tesla said shareholders may still challenge the ratification vote. Even if it does pass, Tesla said it may not fully resolve the matter and a Delaware court could find the ratification itself is not fair to shareholders.

If shareholders don’t ratify the plan, Tesla said it may need to negotiate a replacement with Musk. That may take a lot of time and expense “in light of the criticism� detailed in the Delaware suit.

Tesla is going the route of ratification, instead of trying to negotiate a new package with Musk, which the company said would likely need to be of similar magnitude to the previous package in order to keep him.

Because it’s trying for ratification instead of a new plan, Tesla said it “did not substantively re-evaluate the amount or term� of the package and did not hire another compensation consultant to weigh in on it.

In the 2018 plan, Musk would not get salary or cash bonuses. Instead he was to receive only stock options, and only if the company met certain thresholds. It would need to grow its total market value by certain amounts, while also hitting targets for revenue and pretax earnings, and other items.

Many CEOs at big companies need to hit targets to get a lot of their possible compensation. That’s to encourage decisions that benefit the company and shareholders at large. But Musk was unusual in having all of his pay dependent on such measures.

When the company’s board drew up the compensation plan, it said it thought the hurdles would be challenging to meet. Some outsiders agreed.

But the shareholder plaintiff in the Delaware suit alleged the company’s proxy wrongly characterized all the milestones that triggered vesting in the stock options as “stretch� goals, even though internal projections indicated that three operational milestones were likely to be achieved within 18 months of the stockholder vote.

The board said it believed in 2018 that “many of Tesla’s prior successes were driven significantly by Mr. Musk’s leadership.� And it wanted to motivate Musk to “devote his time and energy� to the company when he also had interests in other companies.

Erik Gordon, a lawyer and business professor at the University of Michigan, said that since Tesla would still be a Delaware corporation at the time of the vote on the package, shareholders could still challenge it in Delaware courts.

But because Tesla disclosed facts in the proxy about the board's ties to Musk, he would expect Tesla to win. “If the uninterested shareholders are properly informed and they vote in favor of it, the court actually has nothing to do," Gordon said. Delaware courts, he said, “want the corporations to disclose and let the shareholders decide.�

Musk may not see much legal benefit from moving Tesla's corporate home to Texas, because the law governing executive pay is similar to Delaware's, Gordon said. “There's no Texas case that tells you if this had happened in Texas you'd have gotten a different result.�

Tesla posted record deliveries of more than 1.8 million electric vehicles worldwide in 2023, but the value its shares has eroded quickly this year as .

The said it delivered 386,810 vehicles from January through March, nearly 9% fewer than it sold in the same period last year. Future growth is in doubt and it may be a challenge to get shareholders to back a fat pay package in an environment where competition has increased worldwide.

The proxy statement filed with the Securities and Exchange Commission does not address Musk’s for him to pursue artificial intelligence and robotics at the company. At present he owns 20.5% of the company.

In January Musk challenged the Tesla board in a post on X, the social media platform he now owns, to come up with a new compensation package. Unless he gets 25%, he wrote that he’d prefer to build products outside of Tesla, apparently with another company.

Wedbush analyst Dan Ives, who is normally bullish on Tesla, said in an interview that the filing doesn't address multiple issues including Musk's future compensation.

“It's the elephant in the room because Musk has threatened over X, and it's been a massive overhang" for Tesla stock, Ives said.

Musk, he said, needs to commit to being Tesla CEO for three to five years and developing artificial intelligence with the company. When Tesla announces first-quarter earnings next week, Musk needs to spell out growth plans, including the status of the Model 2, a small EV that costs about $25,000, Ives said. Otherwise, dark days lie ahead, he said.

“There's a feeling like the plane is crashing into the ocean and the board is focused on their own salted peanuts,� he said.

At the time of the Delaware court ruling, Musk’s package was worth more than $55.8 billion, but the stock slide has cut that to $44.9 billion at the close of trading on Friday, Tesla's filing said.

Starting last year, Tesla has on some models. The price cuts caused used electric vehicle values to drop and clipped Tesla’s profit margins.

This week, Tesla said it , about 14,000 people.

Shares of Tesla Inc. closed down about 1% in Wednesday.

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Choe and Chapman reported from New York.