Shareholders of electric vehicle manufacturer, Tesla, have backed CEO Elon Musk’s remuneration package and supported the relocation of the firm’s corporate registration to Texas, reflecting their continued trust in his leadership strategies despite a decline in sales and a significant drop in share value.
The outcomes of these proposals were announced during Tesla’s yearly meeting held in Austin, Texas on a recent Thursday, although specific voting figures were not disclosed. These outcomes were predicted by Musk in a previous post on X, where he mentioned that both proposals had obtained overwhelming support.
However, this endorsement of Musk’s pay deal is merely suggestive and does not ensure the actual receipt of his remuneration. Musk’s 2018 compensation schedule was overturned by a judge in Delaware earlier this year, but Tesla is likely to challenge this decision. If unsuccessful, migrating Tesla’s legal base to Texas would enable the governing body to resurrect the pay deal in a possibly more agreeable jurisdiction.
Musk’s 2018 remuneration plan could have granted him stock options amounting to approximately $55.8 billion (€53 billion) if Tesla met certain targets. The estimated value of these options, according to Bloomberg data, stood at nearly $48.4 billion by market close on the Thursday in question.
Post trading, Tesla’s shares saw a marginal increase of 1.2 per cent in New York, an upturn contrasting with the 27 per cent decrease over the course of this year, in comparison to the S&P 500 Index’s 14% ascent.
Investor sentiment around Musk’s pay deal has often been interpreted as a reflection of satisfaction or dissatisfaction with his leadership and changes in the firm’s corporate mechanisms. Besides Tesla, Musk’s business interests span six separate companies and his managerial approach has been perceived as unpredictable, as demonstrated in his recent decision to lay off Tesla personnel in large numbers, only to rehire a portions of them after a few weeks.
There has been speculation among investors that Musk may exit the firm if his pay deal is not reinstated. Musk currently holds approximately 13 per cent of Tesla shares and has shown interest in developing products outside Tesla unless his equity share in the firm reaches a minimum of 25 per cent. As per his pay deal, exercising his options would elevate his equity ownership around 21 per cent.
In a bid to gain reinforcement from shareholders for Elon Musk’s remuneration and the relocation to Texas, the auto-manufacturing company went above and beyond. Using a bespoke “Vote Tesla” platform and making use of Musk’s own digital social media avenue, X, the firm ran promotional content. Additionally, present and former Tesla personnel, including engineers and investors, used X to express their support for Musk’s leadership.
However, Judge McCormick from Delaware Chancery Court nullified Musk’s remuneration plan in January citing conflicts of interest amongst board directors and failure to disclose plan terms. The upcoming revote by shareholders could potentially tip the odds in Tesla’s favour for an impending appeal.
The judge will hear arguments regarding disputed attorney charges on July 8. Once a decision has been made about the fees, a final verdict will be issued. Following this, Musk has a window of 30 days to appeal to the Delaware Supreme Court.
Transitioning Tesla’s state of incorporation could be implemented swiftly, perhaps within days post the paperwork submission, according to Charles Elson, a retired academic from the University of Delaware and a corporate governance specialist. However, Tesla cannot bring back the identical 2018 compensation structure for Musk given that Texas courts are bound by law to respect the Delaware court’s judgement.
Amendments of significant scale would need to be made to the blueprint and another vote from shareholders would be required on Musk’s salary, stated Elson. If any investor was to challenge this, a lawsuit would have to be filed in Texas, where business courts are just beginning to take shape.
Shareholders also cast their vote for James Murdoch and Kimbal Musk to retain their seats in Tesla’s eight-member board. Murdoch, who is the progeny of media magnate Rupert Murdoch, has been a board member since 2017 whereas Kimbal Musk, Elon’s younger brother, has held a seat on the board since 2004. Info courtesy: Bloomberg