Musk's $56B Tesla compensation: Shareholder vote won't reverse judge's decision
Tesla's upcoming shareholder vote on CEO Elon Musk's $56 billion pay package is unlikely to reverse a judge's decision to nullify the 2018 compensation deal. The vote, scheduled for June 13, is more symbolic than legally binding, according to some legal experts. Despite this, Tesla is hoping that a positive vote could potentially aid in an appeal or a new case hearing. However, it cannot overturn Chancery Court Judge Kathaleen St. Jude McCormick's January ruling.
Why does this story matter
In 2018, Tesla shareholders approved a compensation package for Musk that could potentially earn him $56 billion over a decade. However, in January, a Delaware judge invalidated the package, citing conflicts of interest among directors and inadequate disclosure of terms. The ruling came in response to a lawsuit filed by a pension fund, which argued that the package was excessive and improperly approved. The ruling also raised questions about Musk's influence on the company.
Tesla's legal strategy and potential outcomes
Tesla initiated the vote as part of an unconventional legal strategy to rectify flaws in the process that led to shareholders approving Musk's pay six years ago. The company is pinning its hopes on the Delaware Supreme Court, which will hear any appeal of McCormick's ruling, to view investors re-ratifying the deal favorably. However, Tesla has acknowledged in its proxy statement that it cannot guarantee a successful outcome.
Potential impact of the vote on Musk's influence
The shareholder vote could potentially strengthen or weaken Musk's influence on Tesla. This year, Tesla's shares have dropped by 29% due to increased competition in the electric vehicle market and declining sales. The vote is widely viewed as a test of confidence in Musk's leadership. Notably, two leading proxy advisers, Glass Lewis & Co. and Institutional Shareholder Services, have recommended that shareholders reject the pay package. Norway's sovereign wealth fund has also opposed Musk's $56bn Tesla pay package.
Musk's pay package: A tool to retain focus on Tesla
The pay package was initially designed to retain Musk's focus on Tesla. Since its approval in 2018, he has sold Tesla shares to buy X (formerly Twitter) and launched xAI, bringing his total number of companies to six. Musk has warned that he will create more AI products outside of Tesla if he cannot increase his equity stake in the company to 25%, from about 13% currently. There are fears that Musk may leave Tesla if package is not approved.
