What just happened? Elon Musk faces losing his title of richest person in the world after a Delaware judge found in favor of investors who said his $56 billion Tesla compensation package was excessive. Assuming the decision isn't overturned in any potential appeal, Tesla will have to offer Musk a new deal and his $205 billion net worth could take a massive hit.

It was five years ago when Tesla shareholder Richard Tornetta filed a lawsuit after the EV giant granted Musk the largest executive compensation package in history. Tornetta accused Tesla of breaching its fiduciary duty by unjustly enriching its CEO, the board of acting without independence, and Musk of dictating negotiations.

Tesla's directors argued that the size of the compensation package was necessary to ensure Musk dedicated his attention to Tesla. Former director Antonio Gracias called the package "a great deal for shareholders" as it led to Tesla's success.

Judge Kathaleen St J McCormick said the defense was unable to prove that the plan was essential for Musk's dedicated attention to Tesla. "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?" the Judge wrote in her decision.

Tornetta's lawyers also argued that Tesla's board never told shareholders that Musk's targets in his compensation plan were easier to achieve than the company acknowledged, and that internal projections showed he was quickly going to quality for large portions of the pay package, writes The Guardian.

The Judge wrote that Musk wielded the maximum influence at Tesla a manager can have over a company. There was also the board of directors that consisted of several people who were close to Musk, including his brother, a friend who vacationed with him, and people who made a lot of money from investing in his companies. Musk himself was also on the board.

Why would one already rich person need so much money? Musk said in November that his Tesla compensation would be used to finance interplanetary travel. "It's a way to get humanity to Mars," he said. "So Tesla can assist in potentially achieving that."

Musk gave Tesla an ultimatum earlier this month: increase his ownership in the company to 25% or he will cut back on its development of AI and robotics. He said the reason why he had not been awarded a new compensation plan was due to a judgment not being reached in the Tornetta case.

Assuming the ruling isn't overturned, Musk's fortune will drop to around $154.3 billion, making him the third-richest person in the world. It's still unclear if Musk will appeal or the Tesla board will offer a new pay package.

Following the ruling, Musk wrote on Twitter/X: "Never incorporate your company in the state of Delaware." He also posted a poll asking if Tesla should change its state of incorporation to Texas, home of its physical headquarters.