Tesla is asking investors to ratify once again the record-breaking 2018 pay package for its controversial chief executive, Elon Musk, after a Delaware court struck it down this year.
In its proxy statement inviting shareholders to a June 13 annual meeting, the company claimed that a yea vote would “restore Tesla’s stockholder democracy” after it was abrogated by the American justice system. In January a judge rescinded his $56 billion compensation deal over governance flaws.
“Because the Delaware court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value,” chair Robyn Denholm wrote in the invitation, arguing it was a “matter of fundamental fairness and respect to our CEO.”
She will likely find the meeting a more raucous affair than last May, when investors were elated that shares had soared 40% from their December 2022 lows.
On Tuesday, the stock plumbed 52-week lows amid news that the carmaker said goodbye this week to over a tenth of its staff, including veteran executive Drew Baglino. Vehicle sales dropped on a year-on-year basis for the first time since the 2020 pandemic and like-for-like earnings are expected to shrink 40% when Tesla reports first-quarter profits on Tuesday.
Denholm argued Musk’s pay package—now only worth $45 billion after a drop in value of the underlying 304 million shares—should be reinstated for two reasons: Not only has he achieved every single milestone target set forth in 2018, he also agreed to lock up for a period of five years any stock he converts from options vested.
The latter would guarantee the part-time CEO had sufficient incentive going forward, according to the Tesla chairman, to ensure the stock price rebounds from its current slump.
Delaware judge Kathaleen McCormick struck down the package in January, ruling the board had not sufficiently informed shareholders that it was effectively arranged by Musk himself, stuffed with his friends and family, and that the package was therefore rubber-stamped instead of independently approved.
Since investors remained in the dark as to the sheer extent of Tesla’s governance problems, the 2018 vote approving his compensation with a 73% majority of the shareholder stock present (excluding shares held by Musk) was hence null and void.
Investors urged to approve moving legal domicile to Texas
The judgment immediately infuriated Musk, who grumbled he would never incorporate his businesses in Delaware again, pledged to pull his businesses out of the state, and called for an exodus by urging other executives to follow his example.
“She has done more to damage Delaware than any judge in modern history,” he seethed. It was his second defeat at the hands of McCormick, who also ensured he lived up to his end of the deal to buy Twitter shareholders out for the $44 billion Musk promised.
The public vote is unequivocally in favor of Texas!
— Elon Musk (@elonmusk) February 1, 2024
Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas. Https://t.co/ParwqQvS3d
On Wednesday, Denholm followed Musk’s wishes and formally recommended on behalf of the board that Tesla investors ratify his demand to re-domicile the company in Texas, where it is already headquartered.
The proposal followed a subsequent analysis conducted by a board committee consisting initially of two directors, until one, Musk business associate Joe Gebbia, dropped out for fear of not being considered sufficiently independent.
After a search for a replacement was briefly discussed, the board determined there was “no reason to delay its work,” according to Wednesday’s invitation.
Lastly, she urged shareholders to vote to extend the terms of James Murdoch, son of Australian media mogul Rupert Murdoch, along with Musk’s own brother, Kimbal, as their directors. It recommended against a shareholder proposal that would limit directorships to one year from the current three, effectively requiring the entire board to be reelected on an annual basis.