In a critical reshuffling of corporate strategies, Tesla, the renowned electric car maker, turned to shareholders on Wednesday seeking a re-endorsement of CEO Elon Musk’s colossal $56 billion compensation agreement forged in 2018. This move arrives in the wake of a Delaware judge deeming the original deal invalid this past January.
The upcoming re-vote precedes the automaker’s anticipated quarterly earnings report next week. Tesla finds itself battling diminished demand and reeling from the public relations aftershocks associated with Musk’s political posts and the controversy sparked by his acknowledgment of an antisemitic conspiracy in the previous year.
Chairperson of Tesla’s Board, Robyn Denholm, outlined the tribulation in a letter incorporated into a regulatory filing. “Elon has not been paid for any of his work for Tesla for the past six years…,” stated Denholm. “That strikes us—the many stockholders from whom we already have heard—as fundamentally unfair.”
This reevaluation occurs amidst criticism of Tesla’s board for its intimate links with Musk, who is also the brother of board member Kimbal Musk. Tesla’s recourse involves a strategy hinging upon a specific Delaware legal provision. This statute permits entities to sanction technically defective corporate maneuvers—like issuing more stock without board ratification—although it’s not always uncontentious.
However, the board’s special committee established for shaping Musk’s pay to resist allegations of undue influence acknowledges uncertainty regarding the “novel” re-approval move’s compliance with Delaware law.
The most substantial executive pay package in the annals of U.S. corporations proposes no direct salary or cash bonuses, appealing instead to the ambitious climb of Tesla’s market valuation—projecting a leap to $650 billion over a decade from 2018. Yet, Tesla’s shares dipped roughly 2%, edging the company’s market valuation toward a close beneath $500 billion for the initial time in around twelve months.
The comprehensive pay structure was previously nullified by Delaware’s Court of Chancery lead Judge Kathaleen McCormick, who labeled the sum “unfathomable” and prejudicial to shareholders’ interests. A positive vote from the shareholders would not directly endorse Musk’s claim to the payout, asserted Eric Talley, Professor of Law at Columbia Law School.
Approval would only remedy the defects in the 2018 voting process, articulated Talley. Musk would nonetheless have to challenge the court’s decision, which found he had significant influence over the negotiation of his unprecedented pay deal. An appeal is projected to ensue later in the year after the trial court ascertains the compensatory sum owed to the shareholders’ legal representation by Tesla.
Post-verdict, Musk bitterly tweeted against incorporating in the state of Delaware—a hint of escalating contention with the state. Additionally, Tesla called for investors to ratify moving the company’s state of incorporation from Delaware to Texas, potentially amplifying discord with Delaware.
Musk had earlier transitioned SpaceX’s incorporation to Texas, and his Neuralink venture to Nevada. Moreover, Tesla proposed retaining Kimbal Musk and James Murdoch, son of media magnate Rupert Murdoch, on its board.
Tesla’s stock has shed more than 36% of its value amidst a global ebb in electric-vehicle sales. Decisions to axe plans for an affordable EV model, coupled with a minimum 10% staff reduction, have provoked skepticism regarding the company’s trajectory.
“Tesla’s stock has been a disaster this year…,” noted Dan Ives, a Wedbush analyst, in a research note. He highlighted the misjudgment of market dynamics in China and the overarching slump in global EV demand alongside mounting rivalry as critical concerns.
As Tesla grapples with these strategic hurdles, the forthcoming shareholder vote emerges as a crucial juncture—a moment where financial acumen and governance practices will come under intense scrutiny in the shadow of Musk’s sprawling, and sometimes polarizing, influence over the electric car empire he has helped shape.
