Tesla is seeking shareholders' approval to reinstate a $56 billion compensation package for CEO Elon Musk, which had been previously rejected by a Delaware court this year. Additionally, the company proposes relocating its corporate headquarters to Texas.
The upcoming vote, scheduled for the annual meeting on June 13, presents a challenging proposition given the current circumstances. The electric vehicle manufacturer, based in Austin, Texas, grapples with declining global sales, sluggish demand for electric vehicles, an aging product lineup, and a significant decline in its stock price, down by 37% this year.
In January, Chancellor Kathaleen St. Jude McCormick ruled against Musk's entitlement to the substantial stock compensation initially slated to unfold over a decade. Responding to a shareholder's lawsuit, McCormick invalidated the pay package, citing Musk's substantial influence over the board, thus deeming the compensation process unfair to stakeholders. She noted Musk's close connections with individuals responsible for negotiating on Tesla's behalf.
Nevertheless, in a letter to shareholders disclosed in a regulatory filing on Wednesday, Chairperson Robyn Denholm asserted that Musk had delivered the growth Tesla sought, meeting all stock value and operational targets outlined in the 2018 package approved by shareholders. Denholm highlighted the remarkable 571% surge in Tesla's shares since the initiation of the pay package.
Denholm emphasized the perceived injustice of Musk going uncompensated for his contributions over the past six years, which significantly fueled Tesla's growth and shareholder value. The company intends to appeal the Delaware court's decision, emphasizing its plan to address the procedural deficiencies and breaches of fiduciary duty highlighted by McCormick if shareholders endorse the new compensation package.
However, Tesla cautioned that shareholders might contest the ratification vote, and even if successful, it might not conclusively resolve the matter. There remains the possibility of further legal scrutiny from a Delaware court regarding the fairness of the ratification process to shareholders.
Should shareholders reject the proposed plan, Tesla anticipates the need to negotiate an alternative compensation arrangement with Musk, a process that could prove time-consuming and costly, particularly given the criticisms outlined in the Delaware lawsuit.