American billionaire Elon Musk has just won Tesla shareholders’ approval for his $56 billion compensation package on June 13, according to Reuters.
Musk wins shareholder vote
Tesla officially revealed the results of the shareholder vote during its annual meeting on Thursday: about 73% of the shareholders voted in favor of CEO Elon Musk’s pay package.
Chief Executive Elon Musk took the stage in a celebratory mood, with cheers erupting from investors.
“I just want to start off by saying: “Hot damn! I love you guys.”
Tesla CEO Elon Musk
Tesla shares recorded after-hours gains of over 1% after the shareholder vote.
In hindsight, Tesla shareholders had initially passed CEO Musk’s $56 billion pay deal in 2018. However, Delaware Chancellor Kathaleen McCormick revoked the decision in January this year after one of the shareholders sued Tesla for allegedly approving the proposal “beyond the bounds of reasonable judgment.”
Next move
While Tesla shareholders have already ratified CEO Musk’s pay package, the electric vehicle giant has yet to appeal the Delaware judge’s decision.
Tesla aims to use the latest shareholder approval to invalidate the court ruling in January 2024. However, the final decision remains in the hands of the Delaware court.
On Monday, Tesla indicated in a filing with the Securities and Exchange Commission its plans to flip the ruling through an affirmative vote.
In hindsight, CEO Musk’s pay package cost about $55 billion when the Delaware court voided it. This amount makes it the highest pay package a Chief Executive would ever receive in the United States.
It is worth noting that CEO Musk does not earn any salary from the EV giant. Thus, his ability to achieve a series of financial goalposts determined his pay.
“The performance award consists of a 10-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.”
Tesla indicated in a press release in 2018
Every time Tesla hits a milestone, CEO Musk receives stock equivalent to 1% of the company’s outstanding shares at the time of the grant. Last year, the EV maker announced the successful achievement of all 12 milestones.
All that said, Tesla has disputed that the pay deal is “fair and necessary” to keep the CEO’s focus on the electric automaker. Several Tesla fans and investors promoted the proposal, including Baron Funds’ Ron Baron and Ark Investment Management’s Cathie Wood.
“Elon is the ultimate ‘key man’ of key man risk. Without his relentless drive and uncompromising standards, there would be no Tesla.”
Baron Funds’ Ron Baron
Tesla seeks to keep CEO Musk
The shareholders’ approval demonstrates their strong determination to keep CEO Elon Musk as Tesla’s leader and ensure that he remains focused on the company despite managing multiple ventures.
CEO Musk previously threatened Tesla to redirect his AI and robotics plans elsewhere if he failed to secure around 25% of voting control, saying that he would “prefer to build products outside of Tesla.”
“He is putting a knife at the throat of the company: ‘You don’t pay me what I want, then I am going to compete.”
Anat Alon-Beck, Case Western Reserve University’s Corporate Law Expert
In another significant win, Tesla announced that it also gained the approval to move its state of incorporation from Delaware to Texas.
