Tesla shareholders recently reapproved Elon Musk’s humongous pay package. The US has seen its fair share of massive top level payouts. But none come close to the whopping $46 billion pay package that Tesla shareholders voted for Elon Musk.
Even before the results of the vote were announced, Musk took to X to claim that shareholders will approve the pay package by a wide margin. “Hot damn, I love you guys,” Musk reportedly said at the shareholder meeting after the vote results were announced.
In a subsequent regulatory filing Tesla noted that 72 percent of the voters present and voting approved of Musk’s pay package. This number excluded votes cast by Elon Musk himself, and his brother Kimbal Musk, who’s also part of Tesla’s board.
Why the vote?
Elon Musk’s payout package dates back to 2017. That’s when the company’s board devised his all-stock pay package, depending on the company hitting specific revenue and market targets.
Shareholders approved this when it was put to vote back in 2018. But Richard Tornetta, one of Tesla’s investors, filed a suit pointing fingers at Tesla’s board calling Musk’s pay package unfair.
When it came before the Delaware Court of Chancery in January 2024, Judge Kathaleen McCormick struck down the package. At that time the pay was worth $56 billion, owing to Tesla’s stock price, an amount the judge called “unfathomable”. The value of the pay package has since declined due to a drop in Tesla’s share price.
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After the pay was blocked by the Delaware court, Tesla decided to take it to its shareholders once again.
“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,” wrote Tesla chairwoman Robyn Denholm in the note to the shareholders.
She called the court’s decision “unfair” and asked the shareholders to ratify Musk’s pay package once again.
In a research note, Wedbush Securities analyst Dan Ives said that some of Tesla’s shareholders are concerned that the pay is necessary to ensure Musk doesn’t leave the company. The fear isn’t unfounded. Earlier this year Musk said he’d “build products outside of Tesla” unless he had about 25 percent voting control of Tesla.
Long road ahead
The approval from the shareholders doesn’t mean the pay will make its way into Musk’s bank account. In fact, it does little to change the status quo.
Legal eagles contend that the Tesla revote is nothing more than chest thumping, and has virtually no legal significance. That’s because the shareholder voting is non-binding on a ruling. It can’t even guarantee that Judge McCormick or an appeals court will even give any weight to the voting.
Jamie E. Wright, founder/CEO, Wright Law Firm reminds us that Musk’s compensation depends on Tesla meeting specific milestones. “Legal issues could arise over milestone disputes, or perceived flaws in the board’s approval process,” says Wright.
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And that’s not all. Someone can raise questions on the board’s independence. Others can ask how this pay is still on the table even after a judge has ruled against it.
Shifting base
In addition to re-ratifying Musk’s pay package, shareholders also agreed to move Tesla’s legal home from Delaware to Texas. Wright says this could potentially further complicate any challenges.
She says moving Tesla’s legal home from Delaware to Texas has significant legal implications, particularly regarding corporate governance and taxation.
“Delaware is known for its business-friendly laws and established case law, offering predictability and stability,” says Wright. “While Texas is also business-friendly, its legal landscape is different.”
She notes that the relocation itself shouldn’t directly impact Musk’s pay package, as its terms remain governed by Delaware law.
However, Wright points out, future governance matters will come under Texas jurisdiction. She says this could potentially influence shareholder disputes and executive compensation issues.
“Additionally, the move to Texas introduces new regulatory considerations and potential litigation risks related to executive compensation,” says Wright.
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