The Advisors' Blog

The Delaware Supreme Court may have concluded the Tornetta case by weighing in only on the recission issue, but does the Court’s decision imply that mega awards aren’t inherently unfair to a corporation? This Fried Frank article says:

The decision can be read as implicitly sanctioning the concept of super-sized compensation. The Court of Chancery, in the opinion below, appeared to suggest that super-sized compensation, at least at some extreme point, might be inherently unfair to a corporation and its shareholders. The Supreme Court, however, by leaving the compensation intact and awarding the Plaintiff nominal damages of $1, seems implicitly to have rejected that view. Moreover, although the Supreme Court stated that partial rescission (i.e., reducing the amount of the compensation) would have been a proper remedy if there had been evidence in the record as to what amount of compensation would be fair, the Supreme Court did not remand the case to the Court of Chancery for such evidence to be developed, but instead awarded nominal damages of $1—suggesting that it viewed the Plaintiff as not having been much damaged by the super-sized compensation that was granted.

And this, it suggests, may facilitate mega awards at other companies, especially when considered with the 2025 DGCL amendments and the Trade Desk decision.

Notably, the new safe harbors for controller transactions, provided under the 2025 DGCL amendments to the Delaware General Corporation Law (the “DGCL Amendments”), also will facilitate super-sized compensation for controller-executives. However, for the most part, the only public companies that are likely to want, and to be able, to grant super-sized compensation will be those that, like Tesla, are controlled or semi-controlled, have a superstar CEO, and have the potential for venture capital company-style growth even though a public company . . .

In 2021, The Trade Desk awarded its founder-CEO-controller a ten-year equity-based incentive compensation package of up to $5.2 billion, dependent on specified milestones being met. This package is the largest ever granted, other than Musk’s packages. The package was approved by the company’s board, but not submitted to a vote of shareholders. In In re The Trade Desk (Nov. 6, 2025), the Supreme Court affirmed the Court of Chancery’s dismissal of the suit, on demand futility grounds.

The Court of Chancery had ruled that, although Green is the company’s controller (with majority voting power), the plaintiffs failed to establish with sufficient particularity their contentions that (i) the purportedly independent directors were beholden to Green based on professional, financial, and personal ties, (ii) Green’s attending compensation committee meetings exerted undue influence on the process, or (iii) the minutes of the committee meetings reflected a lack of negotiation over the compensation package.

The article made some pretty interesting predictions:

When large private tech companies (such as the next Facebook or Uber) go public, we expect to see super-sized compensation “baked in.”

[I]n future cases challenging super-sized compensation, the judicial result could be a reduction in the compensation rather than its being left intact . . . Where a plaintiff seeks total rescission, the defendants will face a strategic decision whether to seek to enforce the full compensation, or instead (or in addition) to seek to avoid total rescission by arguing that at least part of the package is fair and submitting evidence into the record as to what amount clearly would be fair.

There may also be some upward pressure on executive compensation more generally, given dramatic increases at the very top of the scale.

On that last point, we’ve noted how Musk’s awards have already had that impact.

– Meredith Ervine