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After Elon Musk’s $56B pay win, Tesla faces judge who called it ‘unfathomable’

Tesla Inc.’s board chairman said Friday he will try to use Thursday’s strong support for Elon Musk’s $56 billion compensation package to persuade a Delaware judge who invalidated the 2018 agreement.

The lengthy process of reaffirming the company’s largest-ever compensation package ended on Thursday after nearly three-quarters of shareholders, excluding Musk and his siblings, voted in favor of the deal, overriding objections from many institutional investors and proxy advisory firms.

The endorsement is roughly in line with a 2018 vote that Delaware Judge Katherine McCormick invalidated in January. The endorsement does not resolve the litigation, so a legal battle to certify Thursday’s vote could begin as soon as Friday.

“We have the most incredible shareholder base. It’s just incredible,” Elon Musk said at a shareholder meeting on Thursday. dpa/picture alliance via Getty Images

Tesla board chair Robin Denholm said in a letter to shareholders on Friday that the crucial vote affirms the company’s commitment to the deal in 2018. “We intend to litigate this case again in Delaware court to ensure that your voice as a shareholder is heard,” Denholm wrote.

McCormick said in January that the package was “unfathomable” and awarded by a conflicting board of directors with close personal and financial ties to Musk.

Vanguard, Tesla’s largest shareholder after Chief Executive Officer Elon Musk, first opposed the pay deal in 2018 but voted in favor of it this time, playing a major role in its approval, according to a memo seen by Reuters.

Investors hope that the victory will help Musk turn more attention to Tesla, whose shares have fallen as electric-vehicle sales have slowed and Musk bought the social-media platform Twitter, which he later renamed X. Tesla shares were down about 2% in trading on Friday.

Delaware Judge Kathleen McCormick said in January that the package was an “unfathomable sum” awarded by an interested board with close personal and financial ties to Musk. AP

Tesla laid out several voting thresholds required to approve Musk’s compensation package, and under the most stringent threshold, which excluded votes from shares held by Musk and his brother Kimbal Musk, he would receive 72% of the votes cast, up sharply from the 73% he received under the same threshold in 2018.

According to Tesla’s filing, a looser calculation of the vote total gave it 77% support.

Litigation

Legal experts are divided on whether the ruling will have any effect in the litigation, which could drag on for months. Some say the lawsuit’s original argument that Tesla shareholders didn’t fully understand how quickly Musk would reach his 2018 target no longer holds water.

Investors hope that the win will help Musk focus more attention on Tesla, whose shares have been slumping due to slowing sales of electric vehicles. Reuters

“Now that all the facts are out there and shareholders have voted in favor for a second time, it invalidates the entire core of the judge’s argument,” Natella Shenon, a partner at the law firm Grant Shenon in Los Angeles, said Thursday night.

The filing didn’t break out the vote by type of investor but highlighted Musk’s support among retail investors, many of whom are ardent fans of the mercurial billionaire.

“We have the most incredible shareholder base. It’s just incredible,” Musk said at the company’s shareholder meeting on Thursday.

Some major investors have argued that the proposed deal would harm existing shareholders and that the board remains lacking in independence.

Some major investors have argued that the proposed deal would harm existing shareholders and that the board remains lacking in independence. Getty Images

“Rather than continuing to defend itself in court, the board should hire a compensation consultant to renegotiate Mr. Musk’s incentive plan so that it is appropriate and does not dilute shareholders,” said City Comptroller Brad Lander, who oversees the city’s public retirement fund.

Musk, who also owns AI startup xAI, has previously said he would like to develop artificial intelligence and robotics products outside Tesla if he is unable to secure the 25 percent voting control needed for stock compensation.

The proposal to reincorporate Tesla from Delaware to Texas received about 84% of the vote, excluding the votes of board members Elon Musk and Kimbal Musk.

Kimbal Musk has been re-elected to Tesla’s board of directors. Reuters

Tesla directors James Murdoch and Kimbal Musk were re-elected with 69% and 79% of the vote, respectively, according to filings.

Those votes are in line with previous approval ratings but lower than the average for directors at U.S. companies, which has averaged about 95% approval ratings for directors at Russell 3000 companies in recent years, according to shareholder engagement firm Georgeson.

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