Tesla shareholders approved CEO Elon Musk’s substantial share pay package, but it will still be decided by a court in Delaware, even though shareholders also voted to move the company's U.S. domicile from that state to Texas.
Tesla held its annual meeting in Austin, Texas, where it is a major employer with its second U.S. car factory.
Tesla shareholders ignored the irony that the $56 billion value of the award when originally made in 2018 is now worth nearly 20% less at $46 billion, with much of the loss in value attributed to the poor and erratic management by Musk and the company’s board, which has allowed Tesla’s market-leading position in electric vehicles to be significantly eroded.
The pay deal passed despite opposition from some large institutional investors and proxy firms.
Regardless of this vote, which was an endorsement of Musk as CEO, the matter will be decided in court. A Delaware judge ruled earlier this year that the pay plan was improper and "deeply flawed” and “unfathomable."
Musk and Tesla will have to convince Judge Kathaleen McCormick, who found that Tesla’s board members lacked independence from Musk, failed to properly negotiate at arm’s length with the CEO, and didn’t provide shareholders with the full picture before asking them to vote on his pay plan.
He may also face fresh lawsuits on the package, which would be the largest in U.S. corporate history.
Shareholder approval for the compensation serves as both an endorsement of Musk’s tenure and an acknowledgment that investors do not want to risk the company’s future.
After the Delaware court decision in January, Musk threatened to build AI and robotics products outside of Tesla if he failed to gain enough voting control, which essentially required the 2018 pay package to be approved.
He shifted the company’s focus to robotaxis, shelving cheaper mass-market electric cars, to the concern of some investors who feared the autonomous technology will be hard to perfect. Tesla’s sales in 2024 have fallen, not grown, unlike its many competitors in China, and its first-quarter earnings tumbled.
Tesla’s share price has dropped about 60% from its 2021 peak as EV sales have slowed and Musk’s attention has wandered between Tesla and other companies he runs, such as SpaceX. The stock closed up 2.9% on Thursday, but still down 26% year to date. The wider U.S. market is up 14.5%, so Tesla’s underperformance this year has been significant.
Reuters reported, “This vindicates Musk and allays some investor concerns around his waning interest in Tesla,” said Sandeep Rao, senior researcher at Leverage Shares, which owns Tesla’s stock.
The board had said that Musk deserves the package because he hit all the ambitious targets on market value, revenue, and profitability. Large investors, including the California Public Employees’ Retirement System, had called the pay package “excessive.”
“Elon Musk and chair Denholm have made this about CEO loyalty and presented the votes as a decision about whether the company can keep Musk. That is a lot of pressure,” Ivan Frishberg, chief sustainability officer at Amalgamated Bank, told Reuters. The bank voted against the pay proposal, citing concerns about the lack of independence and corporate governance at Tesla.
