Tesla Inc. (TSLA.O) is gearing up to use the robust backing for Elon Musk’s colossal $56 billion pay deal to influence a Delaware court decision that previously nullified the agreement, announced the company’s board president on Friday.
The protracted journey to ratify the unprecedented compensation plan culminated on Thursday, with nearly three-quarters of shareholders—excluding Musk and his brother—voting in favor, despite resistance from institutional investors and proxy advisory firms.
The support level mirrored that of the 2018 vote, invalidated in January by Delaware judge Kathaleen McCormick. Legal efforts to legitimize the recent vote could commence as soon as Friday, as the approval does not automatically settle the ongoing lawsuit.
Robyn Denholm, Tesla’s board chair, emphasized the company’s commitment to the 2018 arrangement in a Friday letter to shareholders. “We are determined to bring this back to the Delaware court to ensure your voices as our company’s owners are acknowledged,” she wrote.
Judge McCormick previously described the pay package as an “unfathomable sum” sanctioned by a board entangled with Musk through personal and financial ties.
Vanguard, Tesla’s largest shareholder after Musk, reversed its initial 2018 disapproval to support the pay package this time, playing a crucial role in its passage, according to a note reviewed by Reuters.
Investors are hopeful this victory will help Musk concentrate more on Tesla amid declining electric vehicle sales and the distractions from his acquisition of the social media platform Twitter, rebranded as X. Tesla shares dropped nearly 2% on Friday.
Tesla detailed several voting thresholds necessary for approving Musk’s pay deal. Excluding shares held by Musk and his brother, the strictest standard saw 72% support, slightly down from 73% in 2018. A broader measure, including all votes, showed 77% approval, per Tesla’s filing.
The Legal Landscape
Legal analysts are divided on the impact of the shareholder vote on the court case, which could extend for months. Some argue that the judge’s initial claim—that shareholders were unaware of how swiftly Musk would achieve his 2018 targets—no longer holds water.
“With shareholders voting for it a second time with full knowledge, the judge’s argument loses its foundation,” stated Natela Shenon, a partner at Grant Shenon in Los Angeles, on Thursday evening.
The filing did not distinguish between types of investors but highlighted the strong backing Musk has from retail investors, many of whom are ardent supporters.
“We have the most awesome shareholder base. It’s just incredible,” Musk remarked at a shareholder meeting on Thursday.
However, some major investors contend that the pay package is detrimental to existing shareholders and criticize the board’s lack of independence.
“Instead of defending this in court, the board should hire a compensation consultant and renegotiate Musk’s incentive plan to make it fair and non-dilutive to shareholders,” suggested New York City Comptroller Brad Lander, who oversees the city’s public retirement funds.
Musk, who also leads AI startup xAI, previously indicated a preference to develop AI and robotics products independently of Tesla if he does not secure 25% voting power, a condition tied to the stock compensation.
A proposal to reincorporate Tesla in Texas from Delaware garnered about 84% approval, excluding votes from board members Elon and Kimbal Musk.
Tesla directors James Murdoch and Kimbal Musk were re-elected with 69% and 79% of votes cast, respectively, consistent with their previous support but lower than the average for U.S. corporate directors. Support for directors at Russell 3000 companies has averaged around 95% in recent years, according to shareholder engagement firm Georgeson.
