Calling the CEO's $56-billion compensation "unfathomable", the judge concluded that the board who granted it failed to act in the best interest of shareholders.

In a written opinion, the Court of Chancery's Kathaleen McCormick said the pay plan was negotiated by directors who had "extensive ties" with their headline-making CEO and appeared beholden to him.

She said:

"Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price."

During the week-long trial, Tesla directors argued that the company was paying to ensure one of the world's most dynamic entrepreneurs dedicated his attention to the electric-vehicle maker.

One director told the court it led to the company's extraordinary success.

The pay package does not guarantee Musk a salary.

It grants stock option awards, allowing him to buy heavily discounted Tesla stock as financial and operational goals are met.

The case was brought by a small Tesla shareholder, Richard Tornetta.

His lawyers argued the board never told investors that the goals were easier to achieve than the company was acknowledging.

They also said the board had a duty to require Musk to work full time at Tesla, instead of letting him focus on other companies, like SpaceX and X.

Ruling in favor of Tornetta, the judge said:

"Swept up by the rhetoric of 'all upside,' or perhaps starry eyed by Musk's superstar appeal, the board never

asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?"

Shares of Tesla dropped in extended trade.

Late on Tuesday, Musk responded in a post on X, saying, "Never incorporate your company in the state of Delaware."

He then launched a poll, asking his followers if he should move Tesla's incorporation to Texas, where its headquarters is physically located.

Musk's lawyer did not immediately respond to a request for comment, while Tornetta's attorney said in an email, "Good day for the good guys."

The ruling can be appealed to the Delaware Supreme Court.