The decision comes in a lawsuit filed by a Tesla shareholder, who argued the package unfairly enriches Musk at shareholder expense, Reuters reported.
The deal, approved by shareholders in 2018, involves no pay or bonuses, instead tying vesting of large tranches of stock options to the company's market valuation regardless of whether it ever turns a profit.
The company put the value of the deal at $2.6 billion at the time it was approved, but some analysts said it could reach $70 billion if the company grows fast enough, according to the report.
Tesla shares fell $5.98, or 2.4%, to $240.62 Friday. The company's market cap is currently just under $44 billion.