Musk claims that Tesla’s shareholders approved of his $56 billion compensation proposal

Elon Musk, the CEO of Tesla (TSLA.O), stated on social media on Wednesday that the company’s shareholders are voting to approve a $56 billion compensation package for him and to relocate the electric vehicle maker’s legal headquarters to Texas. The CEO added that the vote was passed with a significant majority.

“Thanks for your support!!” stated Musk in his X post.

The highest compensation terms in American corporate history were approved by a resounding vote of shareholders, which may assuage investor concerns about Musk’s future at the firm and provide the electric carmaker with leverage in its legal battle to overturn a court ruling that declared the pay package unenforceable.

Premarket trade on Thursday saw a 6.6% increase in Tesla shares, which had risen 3.9% the day before the shareholder meeting.

Musk might have to deal with other lawsuits on the most recent vote in addition to having to fight a protracted legal battle to persuade the Delaware judge that the Tesla board was “beholden” to him.

UC Berkeley legal scholar Adam Badawi stated, “Even if the shareholders approve the old package, it is not clear that the Delaware court will allow that vote to be effective.”

The outcome will be revealed on Thursday at 4:30 p.m. (2130 GMT) at a meeting held at Tesla’s Texas headquarters.

According to a source with knowledge of the preliminary vote total, a mix of votes from large institutional investors and individual investors helped push the “yes” vote over the threshold.

Large investors, such as Norway’s national wealth fund, had declared they would vote against the compensation package, and prominent proxy firms Glass Lewis and Institutional Shareholder Services (ISS) had advised shareholders to reject it.

Voting by shareholders is subject to change until the commencement of the annual meeting.

The relocation of Tesla’s legal headquarters from Delaware to Texas and the reelection of James Murdoch and Musk’s brother Kimbal were among the other recommendations that Tesla shareholders voted on.

Following Musk’s post, Texas Governor Greg Abbott welcomed him on X, stating: “Welcome to a state that has neither a personal nor a corporate income tax.”

RESEARCH NOTE

A few investors saw Musk’s pay vote as a referendum on their level of trust in his ability to govern. Although he is unquestionably Tesla’s driving force and is largely responsible for the company’s success, sales and earnings have recently slowed for the business.

From its peak in 2021, when Musk began selling billions of dollars’ worth of his stake to help finance his purchase of Twitter, raising concerns that he would be overextended, Tesla’s stock has lost over 60% of its value. He currently oversees six companies, including SpaceX, which builds rockets, X, a social media behemoth that was originally Twitter, and xAI, an artificial intelligence startup that Musk founded in 2023.

Tesla’s brand and sales have also been negatively impacted by Musk’s outspokenness and propensity for stirring up controversy.

According to Marcie Frost, CEO of the California Public Employees’ Retirement System, Musk would be able to increase his ownership “at the expense of diluting the value of those belonging to other shareholders” as a result of the compensation plan.

Support for Musk’s compensation package has been garnered by Tesla, particularly from retail investors who account for an exceptionally large portion of the company’s ownership base yet seldom cast ballots.

Executives from the company have stated in messages on X that Musk is essential to Tesla’s success. Tesla has advertised on social media, and to those shareholders who vote, Musk has promised a private tour of Tesla’s Texas factory.

The world’s richest individual merits the package, according to the board, since he has exceeded all of the high expectations for market value, revenue, and profitability.

The board stated that the compensation package is also necessary to maintain Musk’s commitment to Tesla, notwithstanding the Delaware judge’s finding that the 2018 pay plan did not ensure Musk spent a significant amount of time at Tesla.

If Musk doesn’t get enough voting power, which is necessary for the 2018 compensation package to be approved, he has threatened to develop robotics and AI technologies outside of Tesla and opens a new tab.

TRIBAL DISPUTE

The plan was put up by a conflicted board that had tight financial and personal links to the company’s top executive, according to the Delaware court that disqualified the reward package.

In order to support its appeal of the decision—in which the judge pointed out the board’s omission of material information prior to approving the compensation package in 2018—the board called for a shareholder vote.

Ann Lipton, a corporate law professor at Tulane University, stated that the question of whether the board breached its obligations in 2018 remains unanswered by the current shareholders’ vote. This is the subject of the appeal.

Whilst appeals wind up all the way up to Delaware’s Supreme Court, Musk will have to wait months or even years to get his compensation package restored.