Tesla’s controversial CEO Elon Musk, and his massive wealth, are front and center in a shareholder vote this coming week.
Five months ago, a Delaware judge threw out the largest pay package in history, then worth more than $50 billion, that Telsa’s very friendly board had given Musk in 2018. Now, Musk and the board want Tesla shareholders not only to vote again to give him back those stock options, but to relocate Tesla away from the judge’s state entirely.
And his board is threatening if they don’t do so, they won’t get the attention they need from Musk to turn around a company facing its greatest trouble in several years. Tesla’s stock price slid by more than half from its peak as a trillion-dollar company in late 2021. Its sales fell short of forecasts and promises. Its profits are squeezed by a global price war for EVs that it started itself.
The answer will come Thursday, when Tesla holds its annual shareholders meeting and announces results of shareholder votes on two proposals. One would once again approve the package of 303 million split-adjusted stock options, worth $46.9 billion as of Friday’s closing price. That’s down from the $51 billion those options were worth at the time of the decision.
The shareholders approved the package back in 2018, with 73% voting in favor of it. But Delaware Chancery Court Chancellor Kathaleen McCormick in January ruled in favor of shareholders who challenged the package. She wrote that the company’s board “bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.”
McCormick said that process the Tesla board used to create the pay package was “deeply flawed” and criticized the board for being to close to the famous CEO to represent the interests of the shareholders.
“Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote.
Musk and Tesla reacted by appealing the ruling, and by seeking permission from shareholders to move the company’s state of incorporation from Delaware to Texas, where its headquarters is located. Many major companies are incorporated in a different state from where their main offices are located, often in Delaware, which has a reputation for being business friendly. It was because of Tesla’s incorporation in Delaware that McCormick was able to rule on the fairness of the pay package.
Despite the widespread support among shareholders back in 2018 for Musk’s pay package, the Tesla board seems to be scrambling to shore-up support for this month’s vote. It has filed with the SEC more than two dozen communications with shareholders advocating for a yes vote, far more active than most companies are when seeking shareholder approval of their proxy items. It has even opened a lottery in which the winning shareholder who casts a vote gets a tour of Tesla’s Texas factory conducted personally by Musk.
