In a landmark decision amidst heated debate, Tesla shareholders have greenlit Elon Musk’s unprecedented $56 billion compensation package, alongside the relocation of the company’s legal headquarters to Texas.
Elon Musk announced on social media on Wednesday that Tesla shareholders were voting in favor of a $56 billion compensation package for him as well as relocating the company’s legal headquarters to Texas.
“Thanks for your support!” Late on Wednesday, Musk stated on his social media platform X. The resolutions were expected to succeed, according to the charts Musk posted, although shareholders can still modify their vote until the commencement of the annual meeting.
While providing the electric carmaker with more ammo in its battle to overturn a court ruling that nullified the pay package, the approval of the highest compensation package in U.S. corporate history may also assuage investor fears over Musk’s future at the firm.
According to someone with knowledge of the preliminary vote total, the support came from a mix of votes from large institutional investors and small investors.
The outcome will be revealed on Thursday at 4:30 p.m. ET (2030 GMT) during a meeting held at Tesla’s Texas headquarters.
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 do approve the old package, it is not clear that the Delaware court will allow that vote to be effective.”
Premarket trade on Thursday saw a 6.7% increase in Tesla shares, which had risen 3.9% the day before the shareholder meeting.
Large investors, such as the National Wealth Fund of Norway and significant U.S. pension funds, have declared they would vote against the compensation package, and prominent proxy firms Glass Lewis and Institutional Shareholder Services (ISS) have advised shareholders to reject it.
Along with these proposals, Tesla shareholders also had the opportunity to vote on the re-election of two board members, James Murdoch, son of media tycoon Rupert Murdoch, and his brother Kimbal Musk, as well as the relocation of the company’s legal headquarters from Delaware to Texas.
REFERENDUM
Sales and profitability at Tesla have decreased, even though Musk is unquestionably the company’s driving force and is largely responsible for its success. A few investors saw Musk’s pay vote as a referendum on their level of trust in his ability to govern.
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. The business has been sued multiple times for allegedly tolerating employee harassment, something it denies.
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 board declared that Musk should get the package since he achieved all of the lofty goals for market value, revenue, and profitability.
The board stated that Musk’s commitment to Tesla requires the pay package, despite the Delaware judge’s criticism that the 2018 pay plan did not ensure Musk dedicated a significant amount of time to the company—a worry that was also expressed by investors.
If Musk is unable to secure enough votes to pass the 2018 pay package, he has threatened to develop robotics and AI technologies outside of Tesla.
“Based on all of our discussions over the past month large shareholders at the end of the day knew that voting no would risk Musk potentially eventually leaving as CEO and the risk far overweighed the reward,” said Dan Ives, analyst at Wedbush Securities, in a research note.
COURT BATTLE
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.
To support its appeal of the decision—in which the judge pointed out the board’s omission of material information before approving the compensation package in 2018—the board called for a shareholder vote.
“How the shareholders vote now doesn’t answer the question whether the board violated its duties in 2018, and that’s the issue on appeal,” Ann Lipton, a corporate law professor at Tulane University, said.
Musk might have to wait years to learn whether his compensation package will be reinstated while the appeals process moves on, ultimately reaching Delaware’s Supreme Court.
Recently, GreatGameIndia reported that Elon Musk declared in a post on X that he would ban iPhones and enclose them in a Faraday cage if they integrate with OpenAI, expressing security concerns following revelations of Apple’s capability to develop its own AI module.
