A Delaware judge has struck down a $55.8 billion compensation package for Tesla boss Elon Musk after years of litigation over his salary. Tesla shares fell 2 percent after the ruling, but then recovered to close at just over $187 per share.

Wednesday’s ruling came after a shareholder sued Tesla directors in the Delaware Court of Chancery in 2018, claiming Musk was overcompensated. The salary package agreed in 2018, which was to be paid out ten years after Musk reached certain targets, was the largest in corporate history in the United States. This helped make Musk the richest man in the world, as the CEO achieved the dozens of goals he had set for himself by 2023. Musk may appeal the ruling, but has not indicated whether he will do so.

Judge Kathaleen McCormick told the court the amount was “unfathomable” and blamed Tesla’s leadership for failing to properly inform shareholders about it.

The ruling pushed Musk down a notch on Forbes’ list of the world’s richest people, making him the second richest person in the world after Bernard Arnault, head of the French fashion and cosmetics empire LVMH.

Here’s what we know about Musk’s salary agreement and why it was controversial:

What was included in Musk’s Tesla pay package?

Musk, who founded Tesla in 2003, does not receive a salary from the electric car maker. He agreed to the $56 billion compensation package in 2018, covering 10 years.

The deal granted Musk shares worth about 1 percent of Tesla’s equity each time the company met one of its operational and financial goals, such as its ambitious 2018 goal of increasing Tesla’s market capitalization to $59 billion within 10 years US dollars to increase to 650 billion US dollars. This meant achieving the targets set for Tesla’s share price and the company’s profitability. Musk has achieved all twelve goals set by Tesla by 2023.

The package helped increase Musk’s personal worth and made him the highest-paid CEO in the United States. According to Forbes, the tycoon was worth between $198 billion and $220 billion as of November.

Tesla is currently worth $596 billion and is the ninth largest U.S. company by valuation.

Tesla’s lawyers argued that the pay package was designed to incentivize Musk as the company increased production of its Tesla Model 3. The CEO, a controversial figure for his public views on world affairs, is also the head of the spacecraft company SpaceX and a social media site X, formerly Twitter.

Which shareholder sued and why?

Richard Tornetta, an individual Tesla shareholder, filed the lawsuit against Musk and senior Tesla executives in 2018, arguing that the package was excessive and the board did not act independently.

Tornetta, a drummer who once played with the heavy metal band Dawn of Correction, owned just nine of Tesla’s 3.1 billion shares in 2018, when he filed the lawsuit. Its shares are worth about $1,700 today. According to the court, Tornetta’s lawyers will be compensated by Tesla.

Gregory Varallo, Tornetta’s lawyer, argued that when voting on the package, Tesla shareholders were not informed of how easily Tesla’s financial goals would be achieved and that Musk, who owns more than 411 million shares (just over 12 percent) I don’t need any further incentives.

Varallo also said the board did not disclose that Musk designed the pay package himself or how close Musk was to some members of Tesla’s pay committee, such as Antonio Gracias and Ira Ehrenpreis, with whom the CEO has had personal and business relationships for several years.

When the deal was announced, it sparked debate about widening pay gaps at U.S. companies and drew criticism from organizations including the California State Teachers’ Retirement System, a major pension fund and holder of Tesla shares.

Researchers said US CEOs were paid 399 times more than the average worker in 2021.

Wage disparities are also widespread outside the United States. The High wage center analyzed 350 companies in the UK in 2022 and found that the difference in average pay between CEOs and other employees had reached a ratio of 57 to 1. At some companies, the pay gap between CEOs and the lowest-paid workers was as high as 75 to 1.

In a survey conducted by the organization, 76 percent of respondents said that CEOs should earn no more than twenty times the salary of middle- and lower-income colleagues. Oil giant British Petroleum and shoe retailer JD recorded the largest pay gaps.

What did the judge say and what happens to the package now?

In her 201-page statement, McCormick said Tesla’s board had failed to protect shareholders.

She pointed out that the Tesla executives who voted for the package were well known to Musk, although the CEO and his brother, Kimbal Musk, a major shareholder, withdrew from the vote.

“Swept up by the ‘all up’ rhetoric, 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 keep Musk and could achieve his goals?” wrote the judge.

Tesla must present McCormick with a new salary package at an as-yet-undetermined date. The judge will then approve and finalize the judgment.

Musk’s lawyers could appeal, although it’s not yet clear whether that will happen.

Could Tesla leave Delaware?

Musk conducted a poll on X on Wednesday asking users whether Tesla should change its state of registration to Texas, where the company’s headquarters are located. More than 1.1 million people responded, with 87 percent supporting the move.

“Tesla will immediately conduct a shareholder vote to change the state of incorporation to Texas,” Musk wrote.

Musk did not provide a timeline for the shareholder vote and eventual transfer. The CEO said in January that he wanted to double his Tesla stake to 25 percent after selling shares to pay big bills like his $44 billion purchase of Twitter in 2022.