Tesla shares jumped 3.5% at the start of trading on Thursday after Chief Executive Elon Musk indicated shareholders would overwhelmingly approve his controversial $56 billion compensation package and plans to move the company’s legal headquarters to Texas.
Shareholders can vote or change the two resolutions until the company’s annual meeting begins at 4:30 pm ET in Texas. Musk shared a chart showing that preliminary tallies show both bills comfortably clearing the threshold needed for passage.
“Both Tesla shareholder resolutions have now passed by large margins!” Musk wrote on X. “Thank you all for your support.”
A yes vote would mark the latest twist in the ongoing legal battle over Musk’s controversial compensation plan. Tesla is fighting to overturn a decision made earlier this year by Delaware Chancery Court Judge Katherine McCormick that struck down what she called an “incalculable amount.”
A person familiar with the vote told Reuters that large institutional and individual investors were leading support for the two resolutions.
Other investors, such as the California State Teachers Retirement System, have said they intend to vote against the compensation package. Proxy advisory firms Glass Lewis and Institutional Shareholder Services have each recommended shareholders reject the compensation plan.
The judge’s decision stemmed from a lawsuit brought by Tesla shareholder Richard Tornetta, who argued in court that the deal was excessive and unfair to shareholders. McCormick agreed, saying the process by which Tesla’s board approved the deal was “seriously flawed.”
Shortly after the judge’s ruling, Musk said Tesla shareholders would vote to move the company’s state of incorporation from Delaware to Texas. The company’s physical headquarters is already in Austin, Texas.
“If your company is still incorporated in Delaware, I would encourage you to relocate to another state as soon as possible,” Musk said in February.
The compensation plan, the largest in corporate U.S. history, is comprised primarily of stock option grants tied to the company’s performance, and Musk met all of the performance goals necessary to receive the full amount.
McCormick’s ruling raised concerns about whether Musk could remain CEO of Tesla after leading the wildly successful electric-car maker, which has been plagued by sluggish sales and whose shares have fallen 26% since the start of the year.
If approved, it would be “a champagne popping moment for Musk and Tesla shareholders,” according to Wedbush analyst Daniel Ives.
“We think this will remove the $20-25 weight that has been weighing on the stock since a mysterious Delaware ruling launched a ‘Twilight Zone’ soap opera earlier this year,” Ives said in a client note.
Shareholder approval would be both an acknowledgment of Musk’s tenure and an acknowledgment that investors are unwilling to jeopardize the company’s future.Tesla’s shares have fallen about 60% from their 2021 highs as EV sales have slowed and Musk’s attention has shifted between Tesla and other companies he runs.
“This vindicates Musk and eases investor concerns about his waning interest in Tesla,” said Sandeep Rao, senior researcher at LeverageShares, which holds Tesla shares.
In a regulatory filing earlier this month, Chairman Robin Denholm said reinstating the compensation package was necessary to “sustain Elon’s interest and motivate him.”
Musk has warned that if he does not receive enough voting power to approve his 2018 compensation package, he will develop AI and robotics products outside of Tesla.
“Even if shareholders had approved the old package, it’s not clear that a Delaware court would recognize that vote as valid,” said Adam Badawi, a law professor at the University of California, Berkeley.
As the appeal makes its way all the way to the Delaware Supreme Court, Musk may have to wait years to find out whether his compensation package will be restored.
With post wire
