Tesla shareholders have voted to approve a contentious $45 billion pay package for CEO Elon Musk, marking a significant development in the ongoing saga surrounding the largest-ever compensation package granted to an executive at a US-listed company. The decision, announced on Thursday, follows a fiercely contested referendum on Musk’s leadership and compensation.
A Celebratory Elon Musk
Elon Musk expressed his enthusiasm following the vote, appearing on stage and exclaiming, “I just want to start off by saying, hot damn, I love you guys!” His celebratory mood comes after a tumultuous period where his substantial pay package was under severe scrutiny and legal challenge.
The Legal Background
In January, a Delaware judge nullified Musk’s original $56 billion pay package, citing that Tesla’s board was not sufficiently independent from Musk and had reached the compensation figure through an illegitimate process. The judge’s ruling highlighted the board’s conflicts of interest, including close ties to Musk and the involvement of his former divorce attorney.
Shareholder Victory and Future Implications
The recent vote is a victory for Musk and Tesla’s board, who campaigned vigorously for its approval. It potentially counters the judge’s previous ruling by demonstrating that shareholders were well-informed about the pay package and the board’s connections to Musk. This approval could strengthen Tesla’s position in ongoing and future legal disputes regarding the fairness and legitimacy of the compensation package.
However, this vote does not guarantee that Musk will receive the full amount. Ongoing legal battles are expected, with numerous arguments about the board’s independence and the fairness of the package. There is also the potential for new lawsuits to arise from this vote, which could lead to prolonged legal proceedings.
Shareholder Opinions and Broader Implications
Prominent shareholders, including Norway’s sovereign wealth fund and the California State Teachers’ Retirement System, opposed the package, as did advisory firms Glass Lewis and Institutional Shareholder Services. Despite these high-profile oppositions, the approval indicates robust support for Musk among the broader shareholder base.
Moving Tesla’s Legal Home
Adding to the complexity, shareholders also approved relocating Tesla’s legal domicile from Delaware to Texas. This move could further complicate legal challenges and prolong the resolution of disputes related to Musk’s compensation.
The 2017 Compensation Package and Its Legacy
Tesla originally devised Musk’s pay package in 2017, setting it up so he would receive 12 tranches of stock options contingent on the company hitting specific revenue and market targets. This package was widely approved by shareholders in 2018, but subsequent lawsuits challenged its fairness and the board’s process in determining the compensation.
Judge Kathaleen McCormick, overseeing Delaware’s court of chancery, described the board’s process as “deeply flawed,” pointing out significant personal conflicts of interest. Tesla’s board, likely to appeal McCormick’s ruling, sought to rectify the situation through the shareholder vote. Despite McCormick’s criticisms, the board proposed the same deal, now valued at $45 billion due to a decline in Tesla’s stock price.
Looking Ahead
While the shareholder vote marks a significant milestone for Elon Musk and Tesla, the controversy surrounding his compensation is far from over. With legal challenges likely to continue, the final resolution of Musk’s pay package remains uncertain, setting the stage for further disputes and potential legal battles.
As Tesla navigates these challenges, the company’s leadership and its approach to executive compensation will remain under close scrutiny from shareholders, regulators, and the broader public.
