Elon Musk took a big hit to the wallet in January when a Delaware judge rejected the $56 billion payout he was awarded by Tesla. The decision, along with Tesla’s weakened stock price, briefly knocked Musk off his perch as the world’s richest man. Now, Tesla is asking its shareholders to vote again on the pay plan while proposing other changes that would make it less likely future proposals could run into legal trouble.
Tesla CEO Elon Musk lost his perch as the world’s richest man when the pay package was overturned by a Delaware judge.
Elon Musk hopes to recoup the $56 billion payout from Tesla that a court in Delaware rejected last January. The automaker is putting the proposal back on the schedule for its annual shareholders meeting on June 13.
And in a second proposal seen as a way to find a more friendly environment, shareholders also will be asked whether to approve Tesla’s state of incorporation from Delaware to Texas. The company previously moved its physical headquarters to the Lone Star State from California, where it frequently ran afoul of state regulators.
“Unfathomable”
Corporate pay has become an issue of increasing controversy in recent years as C-suite executives watch their earnings grow substantially faster than what most workers experience. A $39 million pay package for Carlos Tavares, the chief executive officer at Euro-American automaker Stellantis, was approved in a vote from shareholders, it was announced Wednesday.
That was a 60% increase from the year before, and becomes one of the biggest payouts for an automotive CEO ever. But it is less than one-tenth of a percent of the award Tesla initially authorized for Musk in 2018.
Delaware Chancery Court Kathleen McCormick rules the $56 Billion payout was “unfathomable.”
“Unfathomable,” ruled Judge Kathaleen McCormick, of the Delaware Chancery Court, concluding a trial that began in December 2023. It was triggered by a dissident shareholder and McCormick agreed that the $56 billion plan was unacceptable, even though the Tesla board set a series of hurdles Musk and Tesla had to clear to receive a series of tranches.
McCormick faulted a “starry eyed” board which, she concluded, was not really as “independent” as claimed. “A number of key milestones in the compensation plan that Musk and the board described in proxy disclosures as very difficult to achieve were, in fact, expected based on Tesla’s confidential projections shared with banks and rating agencies,” she said in rejecting the pay package.
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Shareholders get the final word
Tesla has made big moves in Texas, setting up its new headquarters, as well as Gigafactory Austin.
The shareholder proposal, revealed Wednesday morning would ask investors to essentially approve the board’s original plan which called for Musk to receive up to $56 billion through a 10-year grant of stock options if the targets contained in 12 potential tranches were met.
The hurdles are not being revised – which means that Musk would get the options immediately should a majority of stockholders vote in favor of the resolution.
Separately, the Tesla board is asking investors to approve the relocation of Tesla’s state of incorporation from Delaware to Texas. Tiny Delaware is the legal home for a disproportionate number of businesses due to its history of being a business-friendly state. But it has also provided a venue for dissident investors and others to challenge those corporations – as was underscored by the decision on Musk’s pay.
Tesla has found Texas to be a decidedly more friendly environment on a variety of levels – which led it not only to build its second Gigafactory in Austin but also to relocate its actual headquarters there. It now wants the state to be its legal home.
Pushback
How the vote will shake out is likely to be influenced by a variety of factors. Back in 2018, Musk was seen as a brilliant entrepreneur with a wide fanbase. But that has changed markedly over the last several years. The transformation began even before the South African-born entrepreneur purchased Twitter in October 2022, but the moves he since has made, turning it into a harsh conservative social media outpost – accented by his own posts – has generated a fierce pushback. As Headlight.News recently reported, research suggests How the vote will shake out is likely to be influenced by a variety of factors. Back in 2018, Musk was seen as a brilliant entrepreneur with a wide fanbase. But that has changed markedly over the last several years. The transformation began even before the South African-born entrepreneur purchased Twitter in October 2022, but the moves he since has made, turning it into a harsh conservative social media outpost – accented by his own posts – has generated a fierce pushback. As Headlight.News recently reported, research suggests Musk’s increasingly negative image contributed to Tesla’s unexpectedly weak first-quarter sales.
That, in turn, has harshly impacted the automaker’s stock price. At $156 on Wednesday noon trading, shares under the Nasdaq ticker TSLA were off $92.42 from the beginning of the year, and are down nearly half from a 52-week high of $299.29.
While there are still plenty of bulls who see a strong upside for the automaker, even some of them have grown bearish. Earlier this month, Dan Ives, at Wedbush Securities, called the Q1 results an “unmitigated disaster.” Meanwhile, Per Lekander, a managing partner at the investment management firm Clean Energy Transition, said “I actually think the company could go bust,” during an appearance on CNBC’s “Squawk Box Europe.”
Whether the environment is ripe for Musk to win a “yes” vote for a $56 billion pay package is far less certain than when the board gave its initial approval six years ago.
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