This may be the highest-stakes popularity contest ever.
Friends and foes of tech billionaire Elon Musk are locked in a two-month battle over whether to reinstate a record $56 billion compensation package. Tesla A few months ago, a Delaware judge threw out the executive’s compensation as improper.
The fight is taking the form of a shareholder vote: Nearly all owners of Tesla stock, including Wall Street firms and thousands of individual investors, are voting for or against the pay package, mostly after the automaker announced in June Online voting will take place before the annual meeting on the 13th.
The question facing shareholders is whether to support a pay package they originally approved in 2018 but which a Delaware judge deemed illegal under the state’s corporate law.
The vote was unusual not only because of the wealth Musk would gain — a sum greater than 250 times the median of Musk’s peers, according to the judge who invalidated the vote in January — but also because of the public and private The struggle between the two sides.
Tesla bought ads and launched a website to try to convince investors to vote for the plan — a tactic that experts say is unheard of in the debate over corporate executive pay. Some Musk supporters are also producing online videos and reaching out to potential swing voters one-on-one as if it were an election for public office.
But opponents of Musk’s salary deal are also starting to organize. Several investors published a joint letter this month urging other shareholders to vote down the plan as going too far.
The vote is a test of investors’ continued confidence in Musk, who has become an increasingly polarizing public figure, particularly because of his extreme views on issues such as immigration and transgender issues. As one of the richest men in the world, he has a loyal following of fans.
James Park, a UCLA law professor, said investors are likely to consider a range of factors when deciding whether to reward Musk’s performance as CEO.
“It’s somewhat of a popularity contest, but I think shareholders will also do a smart rational calculation to see if it’s worth paying the money to make sure he doesn’t go somewhere else,” he said.
Musk has all but threatened to abandon the company if he doesn’t acquire additional shares of the company. In January, he posted on X that he would “prefer to make products outside of Tesla” if he did not have 25% voting control of the company. As of January, he held about 13% of the company, CNBC reported.
Musk’s attention has been distracted. He is also the CEO of rocket company SpaceX, owner of X, and co-founder of brain science startup Neuralink.
Even by Musk’s standards, the amount of money involved is huge. His net worth is $191 billion, according to the Bloomberg Billionaires Index, so the scheme amounts to more than a quarter of his wealth. Musk never received the money: When the plan lapsed, he had stock options equivalent to 304 million Tesla shares but had not yet exercised his option to acquire those shares, according to the Delaware ruling.
Tesla shareholders approved a compensation package in 2018, with compensation tied to Tesla’s performance, including its market capitalization. There was dissent even then, with 73% in favor, compared with the usual 95% for corporate CEO pay, according to Reuters.
To some of Musk’s critics, the vote on whether to revive the $56 billion plan was a blatant attempt to circumvent a ruling by Delaware Chancery Court Judge Kathhaleen McCormick. She ruled in favor of Tesla’s minority shareholders, who argued the pay was unfair, in part because the board that approved it was too close to Musk to be fully independent and because shareholders didn’t know all the facts.
“At least as far as this transaction is concerned, Musk controls Tesla,” McCormick wrote in the ruling.
The situation is far from the textbook model of how to run a large company, said Nadya Malenko, a finance professor at Boston College School of Management.
“These are not good examples of governance,” she said, pointing to the conflicts and lack of transparency exposed in the Delaware lawsuit.
After the Delaware ruling, attorneys for plaintiff shareholders asked a judge to award a record $6 billion in legal fees to the successful plaintiffs. A judge has not yet ruled on the request, and Tesla’s board said in a proxy statement that if shareholders re-approved the compensation package, it may not be justified in paying the fee.
Musk and the board said they plan to appeal McCormick’s ruling and hope a second vote will actually overturn McCormick’s concerns about the pay package. The board of directors also separately asked shareholders to approve moving Tesla’s registered place to Texas.
But Tulane University law professor Ann Lipton said it was far from clear that a second shareholder vote would survive court scrutiny. She said even if a majority of shareholders vote “yes,” there will almost certainly be further litigation in Delaware — meaning the case will continue.
“This has never been done before,” Lipton said, calling the entire incident unprecedented. “The idea of having another vote after a trial, after a finding of breach of fiduciary duty — I don’t know that anything like that has happened before.”
Lipton said that from a legal perspective, corporate boards are supposed to maximize shareholder value, but it’s unclear how compensation packages benefit shareholders in a practical way. She said the $56 billion would be back pay for a period of work Musk had already done since 2018, and a court could still rule it unreasonable if it were considered a bonus or gift.
“Gifts are fine. Gifts are fine. But gifts of corporate assets without corresponding benefits fall under the legal category of ‘waste,'” she wrote in a blog post.
Some of Musk’s supporters said that despite the Delaware ruling, they believed the 2018 pay package was a promise that Tesla should honor as long as Musk lived up to his word and met the pay package’s performance goals.
Several investors posted “A deal is a deal” on Musk’s social media app X, along with screenshots confirming their votes and the hashtag #VotedTesla24.
The performance requirements set in 2018 are based on three factors: Tesla’s market value, revenue and profitability. Musk has already achieved some of those goals, with his market capitalization, a measure of a company’s value, growing from $59.1 billion in 2018. Over $570 billion This year. And he still has time to hit targets that haven’t been reached, including revenue targets, because the compensation package is for 10 years.
In a 440-page proxy statement explaining the vote, a committee of Tesla’s board noted “new circumstances.” It recommended approval to “avoid further uncertainty about Mr. Musk’s compensation and motivations.” The committee wrote that it could not predict the final court outcome if some shareholders challenged the vote.
The shareholder voting process is so complicated that some Musk fans made videos of how to do it and posted them on Musk’s social media app, X. Some shareholders can vote online themselves, while others must vote through a broker. One Musk fan, using @TeslaBoomerMama on X, asked shareholders to fill out a form for help if they had any difficulty voting.
This kind of public-private wrestling sometimes plays out in competitive elections for corporate board seats — as was the case on Disney’s board this year — but not when the issue is pay.
So far, most institutional investors have not revealed how they voted. T. Rowe Price, one of the top 10 shareholders, expressed some support but stopped short of announcing a vote in favor.
“We believe it is unfair to create a new set of options with a new set of performance barriers,” the company wrote in a letter to Tesla’s board of directors. “The requirements of the 2018 package are very ambitious.” , and they have already been achieved.
But T. Rowe Price told Reuters in April that it was too early to say how the company’s funds would vote. The company did not immediately respond to a request for comment Friday.
New York City Comptroller Brad Lander was among the institutional investors who signed the letter of opposition, along with union-owned Amalgamated Bank.
“Shareholders should not pretend that the award has any incentive effect – it does not. It does suffer from excessiveness issues, which were apparent from the outset,” they wrote.
Shareholder votes are not made public unless investors share how they voted. Shortly after the Tesla board of directors announced the vote in April, some people began to share screenshots of their votes. The deadline for online voting was June 12. Some people may also vote in person at the annual shareholder meeting on June 13. Expected during or shortly after the meeting.
