Tesla Investors Approve Musk's $56 Billion Pay Package and Texas Move

Tesla Investors Back Musk’s Compensation and Move to Texas Despite Challenges

Tesla Inc. shareholders have shown strong support for CEO Elon Musk's compensation package and the proposal to shift the company's legal incorporation to Texas. This confidence in Musk’s leadership comes despite ongoing challenges, such as reduced sales and a sharp decline in stock value. The outcome of the votes was announced during Tesla’s annual meeting in Austin, but specific voting breakdowns were not disclosed.

Musk had indicated the likely result the previous night via a social media post, noting that both proposals were “passing by wide margins.” It is important to note, however, that the compensation vote is advisory and does not guarantee Musk will receive the proposed remuneration. Earlier this year, a Delaware judge invalidated Musk’s 2018 compensation plan, a decision Tesla plans to appeal. Should this appeal not succeed, relocating the company's legal base to Texas could allow for the reinstatement of a revised compensation package under potentially more favorable judicial conditions.

The 2018 package had the potential to grant Musk up to $55.8 billion in stock options, subject to Tesla meeting certain performance milestones. As of the close of trading on Thursday, the current value of these options was estimated at approximately $48.4 billion. Following the annual meeting, Tesla shares saw a slight increase of 1.2% in extended trading. However, the stock has generally performed poorly this year, dropping about 27% in contrast to the S&P 500 Index’s 14% gain.

Investor Sentiments and Musk’s Leadership

The compensation vote is widely perceived as a measure of investor confidence in Musk’s governance amidst criticisms of Tesla’s corporate oversight. Musk, who simultaneously manages six different companies, is known for his unpredictable shifts in strategy and recent massive layoffs followed by rehiring some of the workforce weeks later. Concerns have surfaced regarding Musk's commitment to Tesla if his compensation package isn’t restored, especially as he has hinted at developing products independently from Tesla if his stake in the company doesn’t reach 25%. Musk currently owns about 13% of Tesla shares, with the potential to increase to 21% should he exercise his stock options.

Tesla made substantial efforts to secure shareholder backing for both proposals, launching a “Vote Tesla” website and running advertisements on Musk’s social media platform. Prominent investors, engineers, and current and former Tesla executives also used social media to endorse Musk and his leadership.

Judicial and Corporate Governance Issues

In January, Delaware Chancery Court Judge Kathaleen St. Jude McCormick invalidated Musk’s compensation plan, citing board director conflicts of interest and insufficient disclosure of plan terms. This new shareholder vote could strengthen Tesla’s position in its forthcoming appeal. Arguments regarding disputed lawyer fees in the case are scheduled for July 8 before McCormick, who will make a final ruling afterwards, giving Musk a 30-day window to appeal to the Delaware Supreme Court.

While moving Tesla’s incorporation to Texas could be swiftly executed, the company would need to significantly modify Musk's compensation plan due to Texas courts' obligation to honor Delaware’s judicial decisions. This would require another shareholder vote on Musk’s new compensation package, potentially opening it to legal challenges in Texas, a state still developing its business courts.

In addition, Tesla shareholders voted to reelect James Murdoch and Kimbal Musk to the company's eight-member board. James Murdoch, son of media tycoon Rupert Murdoch, has been a board member since 2017, while Kimbal Musk, Elon’s younger brother, has served on the board since 2004.