Electric vehicle giant Tesla asked its shareholders on Wednesday to reapprove Chief Executive Elon Musk’s astounding $56 billion pay package established in 2018, which a Delaware court revoked in early 2024.
Tesla board seeks shareholders’ reapproval for CEO Musk’s payout
According to Reuters, Board Chairperson Robyn Denholm recently wrote to shareholders asking them to re-ratify CEO Elon Musk’s pay package worth a whopping $56 billion. As per the letter, four of the company’s top 10 institutional shareholders reached out to Denholm to complain about the revocation of the pay deal.
In hindsight, Tesla shareholders already approved the pay package at a meeting in 2018. However, the approval lost validity after a shareholder named Richard Tornetta defeated the company in a lawsuit in early 2024. The court ruled that the compensation deal for the Tesla boss was “deeply flawed.”
“We do not agree with what the Delaware Court decided, and we do not think that what the Delaware Court said is how corporate law should or does work. So we are coming to you now so you can help fix this issue.”
Board Chairperson Robyn Denholm
If Tesla succeeds in getting its shareholders to approve the payout, CEO Elon Musk will collect shares amounting to $47.8 billion at today’s share price.
“Elon has not been paid for any of his work for Tesla for the past six years. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair.”
Board Chairperson Robyn Denholm
Moreover, it can also reportedly revoke a $5 billion payout in shares intended for the lawyers who worked on the case. For context, lawyers for shareholders who opposed the original pay package in the Delaware court had requested a multibillion-dollar share as payment for their work.
The votes will occur at Tesla’s upcoming annual meeting on June 13, 2024.
Tesla aims to move its incorporation to Texas
Apart from CEO Elon Musk’s $56B payout, the board is also asking the shareholders to approve moving Tesla’s incorporation from Delaware to Texas. The move came as some kind of a backlash from CEO Elon Musk, who got disappointed after a Delaware court ruled the pay package illegal in January this year.
At the time, CEO Musk asked X users to vote on whether the company should transfer its domicile to Texas. After 87% of the respondents voted to favor the move, the Tesla boss decided “will move immediately to hold a shareholder vote to transfer state of incorporation to Texas.”
Months later, the board agreed with CEO Musk’s decision. It is now encouraging shareholders to approve the move to Texas. Tesla emphasized that Texas holds its “home and future.”
The two abovementioned proposals are highly likely to be very controversial. Tesla reportedly tapped a proxy solicitor, Innisfree M&A. It is willing to spend millions of dollars to help secure the votes, as per the filing.
“The Company and the Board believe that the decision in Tornetta ignored material evidence presented at trial and that the Delaware Court made errors of fact and incorrect conclusions of law.”
Tesla stated in the proxy filing
The court’s ruling (The Tornetta decision)
Delaware Chancery Court Chancellor Kathaleen McCormick ruled early this year that the Tesla boss was the one who controlled the electric automaker instead of the board in the $56B payout approval.
Moreover, the Chancellor further judged that the board’s compensation committee “worked alongside him, almost as an advisory body” instead of negotiating with the Chief Executive.
The court ruling, dubbed “The Tornetta decision” (named after the shareholder who filed the case), provoked Elon Musk to say, “Never incorporate your company in the state of Delaware.”
The upcoming vote stands as an opportunity for shareholders to repromote Elon Musk’s leadership amid declining sales due to slower-than-expected uptake and intensifying competition. The voting will transpire at the company’s upcoming annual meeting on June 13, 2024. Tesla also plans to release its Q1 2024 financial results next week.
