Tesla Seeks Shareholder Approval on Comp Plan, Relo to Texas

April 23, 2024

Elon Musk appears determined to win back his $56 billion compensation package rescinded in February by a Delaware Chancery Court judge ruling following a bench trial. In a preliminary proxy statement filed April 17 in advance of its annual meeting, Tesla asked shareholders to vote “for” Musk’s 2018 performance-based pay package and the relocation of Tesla from Delaware to Texas. Tesla’s annual shareholder meeting is June 13.

In addition to a second vote by shareholders on the 2018 comp package, the Tesla CEO must also file and win an appeal in the Delaware courts, which would likely invite more litigation.

Despite Tesla’s spectacular growth during the years covered by the contested comp package, the automaker’s fortunes seem to have turned: Its stock has lost 40% of its value, Musk announced a 10% layoff of Tesla’s workforce, and some 4,000 Cybertrucks were recalled due to a defect. Tesla’s market share of E.V. sales in the United States is now 51 percent, down from 65 percent less than two years ago. The confluence of distressing circumstances sets the stage for what could be a contentious shareholder meeting.

In a letter to shareholders in the proxy statement, Tesla Board Chair Robyn Denhold said that thousands of shareholders were disappointed by Delaware Chancellor Kathaleen St. Jude McCormick’s ruling, which found that Tesla directors were not independent when they recommended what the judge wrote was an “extraordinary” pay package.

“Elon delivered,” Denhold wrote. “Tesla’s stockholders have benefited from unprecedented growth under Elon’s leadership and Tesla has met every single one of the 2018 pay package’s targets. And, most importantly, for the future of Tesla, the 2018 CEO pay package built in further incentives…by requiring that Elon hold onto any shares he receives when he exercises his options for five years—which means he will continue to be driven to innovate and drive growth.”

Delaware law experts interviewed by Reuters and other publications said they were unaware of any precedent to overcome a court ruling by using a shareholder vote in this way.

“That’s the $56 billion question,” Larry Hamermesh, a professor with Widener University Delaware Law School, told Reuters. Tesla’s “position clearly is that all we need to do is have the stockholders say, ‘Oh, no, we, we hear you chancellor, but this is okay with us.'”

Farient will be watching the twists and turns of this developing story, especially reactions from major shareholders and proxy advisors as they consider how to vote on the company’s latest proposal.

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