Tesla (TSLA) stock closed higher on Wednesday on reports that the company's board is once again exploring how to compensate CEO Elon Musk.

Per the Financial Times, Tesla's board has formed a special committee to explore a new pay package for Musk, with stock options potentially on the table. The Financial Times said the special committee is made up of chair Robyn Denholm and board member Kathleen Wilson-Thompson. The committee will also explore "alternative ways" to compensate Musk for past work should Tesla fail to reinstate Musk's prior 2018 pay package, which is on appeal with the Delaware Supreme Court.

Tesla shares have been on a tear recently, jumping 4% and closing near highs and up 25% in the past five trading sessions.

Read more about Tesla's stock moves and today's market action.

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The battle over Musk's pay package will go down in the lore of Delaware corporate law battles. Tesla was incorporated in the state before moving its headquarters to Austin, Texas, in 2024.

Early last year, Musk's package was struck down by a Delaware court. The judge foudn that Tesla's board didn't act "in the best interests" of Tesla shareholders and showed "barely any evidence of negotiations at all." The all-stock pay package, worth around $56 billion at the time of exercise, had been embroiled in controversy as major shareholders argued over its fairness.

Then, in June, Tesla shareholders reapproved Elon Musk's record-breaking pay pact, removing a big overhang, with investors seemingly blessing the controversial compensation plan, in addition to approving the move of Tesla's corporate domain to Texas from Connecticut.

But that didn't seem to matter, as the Delaware judge rejected the attempt to reinstate Musk's pay in December. The matter is now on appeal.

If the appeal fails, a new package for Musk would be needed, as the CEO has complained about not being paid over the past few years and has threatened the board and shareholders in the past that he wouldn't be "comfortable" leading Tesla without at least 20% ownership of the company. The threat implied he would be taking initiatives like AI development to his other companies, like X.com and xAI.

Musk's recent behavior may also be a problem from a perception point of view. His embrace of President Trump and far-right positions has led to blowback, with Tesla sales falling in major territories and the Tesla brand seen as deeply damaged.

Following a dismal Q1 earnings report, Musk publicly stated that he would be spending more of his time at Tesla, meaning he would be back at the helm of the company that made him the world's richest person and Tesla, one of the very few companies with a trillion-dollar market cap.

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That's not to say his return would solve all of Tesla's problems. Musk's big bets on autonomous driving and robotics like Optimus are a long way from paying off, and the company's lack of cheaper EVs and an aging product lineup has led to demand erosion.

The board has not been free of controversy either. Recently, Denholm refuted a Wall Street Journal report that the board was looking for replacements for Musk and had told Musk to return to Tesla and reassure investors.

Denholm, who sold a whopping $538 million in Tesla stock since she joined the board in 2014, has been questioned by investors over her massive compensation and lack of corporate governance. The board also settled a lawsuit brought by shareholders and had to pay back millions in compensation.StockStory aims to help individual investors beat the market.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on X and on Instagram.

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