Tesla CEO Elon Musk has received enough shareholder votes to approve his 2018 stock option compensation package. This is a significant victory for Musk, as the package could potentially result in a payout of up to $56 billion, making it the largest CEO compensation package in history. However, it is important to note that the final ruling is still pending from the judge in Delaware who initially rescinded the package.
The legal battle surrounding Musk’s pay deal began in 2019 when Tesla shareholder Richard Tornetta filed a suit claiming that Musk, as a part-time CEO, was receiving an unfair amount of money without the board’s requirement for him to focus solely on Tesla. The judge, chancellor Kathaleen McCormick, ruled in favor of Tornetta, stating that shareholders were not adequately informed about Musk’s control over the pay package construction.
Despite the approval from shareholders, Tesla and Musk are likely to face further lawsuits. One of the concerns raised is that Musk’s time is divided among multiple companies, including xAI, SpaceX, and Neuralink. Shareholders have also accused Musk of insider trading and diverting talent and resources to xAI, a competing AI company.
To mitigate the risk of the pay package being blocked by the courts, Tesla decided to re-incorporate in Texas. Musk had previously expressed his dissatisfaction with incorporating companies in Delaware and conducted a poll on X, a social media platform, asking whether Tesla should change its state of incorporation to Texas.
In addition to the approval of Musk’s compensation package, two stockholder proposals passed. The first reduces director terms to one year, ensuring more frequent accountability. The second requires simple majority voting provisions in Tesla’s governing documents, allowing for greater shareholder influence.
On the other hand, none of the five shareholder proposals aimed at enhancing Tesla’s environmental, social, and governance (ESG) practices were successful. These proposals included initiatives such as annual reporting on anti-harassment and discrimination efforts, adoption of collective bargaining, and integrating sustainability metrics into senior executive compensation plans. Tesla’s board recommended voting against these proposals, and shareholders typically follow the board’s recommendations.
Overall, while Musk’s compensation package has gained shareholder approval, the final ruling from the Delaware judge is crucial. Tesla and Musk may also face legal challenges related to his divided time and alleged diversion of resources. By re-incorporating in Texas, Tesla aims to minimize the risk of the package being blocked. Additionally, the passing of certain stockholder proposals indicates a push for increased accountability and shareholder influence within the company.
