Tesla Requests Shareholder Approval for Musk’s 2018 Pay Voided by Judge
In a move that could reignite controversy and division among Tesla shareholders, the electric vehicle (EV) giant has requested shareholder approval for CEO Elon Musk’s record-breaking $56 billion pay package that was previously rejected by a Delaware judge. The compensation, which was set in 2018, includes no salary or cash bonus but instead offers rewards based on Tesla’s market value rising to as much as $650 billion over the next decade.
The decision to seek approval once again comes ahead of Tesla’s quarterly earnings report next week, adding to the anticipation surrounding the company’s financial performance. Currently valued at $500.36 billion, according to LSEG data, Tesla’s market value has seen impressive growth in recent years, making Musk’s pay package a subject of intense scrutiny.
The rejection of Musk’s pay package earlier this year by Kathaleen McCormick of Delaware’s Court of Chancery was a major setback for both the CEO and the company. Describing the compensation as an “unfathomable sum” that was unfair to shareholders, McCormick nullified what was then considered the largest pay package in corporate America. However, Tesla’s board chairperson, Robyn Denholm, expressed disagreement with the court’s decision, stating that it did not align with corporate law.
In an effort to rectify the situation, Tesla is utilizing a section of Delaware law that allows companies to ratify actions that were technically defective, although this provision is not typically used for controversial matters. The board’s special committee acknowledged the uncertainty surrounding the re-approval of the pay package under Delaware law, describing their approach as “novel.”
Interestingly, Tesla is also seeking approval from its investors to relocate the company’s state of incorporation from Delaware to Texas. This move could potentially escalate the ongoing conflict between Musk and Delaware, as it follows his previous decisions to shift the incorporation of his other ventures, such as SpaceX and Neuralink, to Texas and Nevada, respectively. Musk has been a vocal critic of regulations and what he perceives as excessive bureaucracy, making this relocation a strategic and symbolic move.
The performance of Tesla’s shares has been a topic of concern for investors this year. After experiencing tremendous growth in 2020, with share prices more than doubling, Tesla has faced challenges in 2021 as global EV sales have slowed down. As a result, the company’s shares have lost over 36 percent of their value so far this year. The outcome of the re-approval vote for Musk’s pay package could potentially impact investor sentiment and further influence Tesla’s stock performance.
In conclusion, Tesla’s request for shareholder approval of Elon Musk’s contested $56 billion pay package demonstrates the ongoing debate surrounding executive compensation and corporate governance. The rejection by a Delaware judge earlier this year sparked controversy, prompting Tesla to utilize a section of Delaware law to seek re-approval. Additionally, the company’s plans to relocate its state of incorporation from Delaware to Texas adds another layer of complexity to the situation. As Tesla prepares to announce its quarterly earnings next week, all eyes will be on the outcome of the vote and its potential impact on the company’s future.
