Will Tesla’s shareholders approve Elon Musk’s pay package?

All eyes are on Austin in Texas. The Tesla Board will be meeting on Thursday to decide on the $56 billion pay package for its CEO Elon Musk. While the voting commenced among all shareholders in April, the result of this vote will be announced on Thursday either at the meeting or shortly after the meeting concludes. This case has turned the spotlight on certain elements of corporate law focusing on pay cheques of CEO’s. This voting among shareholders has caught the imagination of the stakeholders with many comparing it to an election to hold a public office.

Background:

The shareholders of Tesla had voted in 2018 to approve a pay package for Elon Musk amounting to $56 billion, with the compensation linked to the market value of the company. Even during this vote, only 73% of the shareholders approved it leaving others disappointed. Generally, such corporate compensation packages are approved with over 95% approval.
Immediately after this vote, Kathaleen McCormick who was a judge at the Delaware Chancery Court struck down this decision of the board. A section of the shareholders had filed a case alleging that the directors who had voted in favor of Musk were close to him and could not take an independent decision and the shareholders were not aware of the entire matter. The judge deemed it to be a violation of the state corporate laws.

Present Voting:

The current voting process which began in April will reinstate the pay package linked to the overall performance of the company. This will reinstate the 2018 decision of the board and over rule the verdict of the Delaware court. The company’s market value has moved up from $59.1 billion in 2018 to more than $570 billion this year. Many of Musk’s supporters have argued that he has led to the company and deserves to get this pay package while others are not in favor of handing over almost 25% of the company’s shares to him. He presently holds over 20% of the shares.

The board will also decide on shifting Tesla’s incorporation to Texas from the state of Delaware. Many experts have pointed out that the Thursday vote which seeks to override a judicial verdict will only lead to further litigation. Elon Musk has used social media company X (formerly Twitter) to reach out to all the shareholders and seek support in favor of the compensation package.

FAQs:

Has any other company of Elon Musk shifted their incorporation from Delaware to Texas?
Elon Musk announced in February 2024 that Space X has moved its incorporation from Delaware to Texas. He also moved the incorporation of Neuralink Delaware to Nevada. The serial entrepreneur had expressed his unhappiness with the state of Delaware after the judicial verdict in 2018.

Can Tesla sell its products in Texas?
Residents of Texas cannot buy any Tesla product in the state. Texas is one of the 17 states which prohibits any direct selling of vehicles by the automakers. The sale can happen only through registered dealers. The residents will have to move to another state and purchase it there before bringing it to Texas.