Tesla announced that it will seek shareholder approval to reinstate CEO Elon Musk’s $56 billion pay package, which was previously voided by a Delaware judge earlier this year due to being deemed “deeply flawed.” In addition to this proposal, Tesla also plans to ask shareholders to approve moving the company’s incorporation from Delaware to Texas, following Musk’s suggestion after the pay package was ruled illegal. These decisions come shortly after the company announced a 10% reduction in its workforce, indicating a turbulent period for the automaker.
The court ruling overturning Musk’s pay package was described as creating a “fundamental problem for the company” by Tesla. The company has hired a proxy solicitor, Innisfree M&A, and will be spending a significant amount, likely in the millions, to secure votes for the two proposals. The decision to enlist the help of a proxy solicitor suggests that the upcoming shareholder votes on these matters may be contentious, as they were when Musk’s pay package was initially proposed in 2018. Musk’s invalidated pay package resulted from a lawsuit brought by a shareholder earlier this year, prompting Musk to express dissatisfaction with incorporating companies in Delaware.
In its proxy filing, Tesla criticized the court decision that invalidated Musk’s pay package, stating that the ruling ignored important evidence presented at trial and made factual and legal errors. The company also highlighted that numerous institutional stockholders have expressed disagreement with the court’s decision, indicating a divide among Tesla’s investors over the issue. Tesla emphasized that its future lies in Texas and defended the proposed move from Delaware, noting that many S&P 500 companies are not incorporated in Delaware and highlighting Tesla’s inclination towards innovation and new approaches as key factors influencing the decision.
The proposal to move the company’s incorporation to Texas was directly related to the court’s findings regarding the deficiencies in Tesla’s 2018 disclosures. Musk had previously floated the idea of relocating Tesla’s headquarters to Texas, and the board later agreed to the move, prompting the proposal for shareholder approval. Both Elon Musk and his brother Kimbal Musk recused themselves from the deliberations on this matter, emphasizing transparency and ethical considerations in the decision-making process. Tesla underscored the company’s forward-thinking approach and its history of embracing change as fundamental to its success, aligning the move to Texas with its innovative ethos.
Delaware has traditionally been a coveted destination for corporations due to its robust legal framework and dedicated court system for resolving corporate matters, making Tesla’s proposed move to Texas a notable departure from the norm. The announcement regarding the relocation and the reinstatement of Musk’s pay package indicate a bold and potentially divisive strategy for Tesla as it navigates legal challenges and shareholder dissent. The company’s efforts to secure shareholder support through the engagement of a proxy solicitor reflect a commitment to pushing forward with its proposed changes despite potential opposition, underscoring Tesla’s determination to chart its own course and drive innovation in the corporate landscape.
