Tesla is seeking shareholder approval for a 2018 pay package for CEO Elon Musk that was previously thrown out by a Delaware judge earlier this year. The package allowed Musk to buy 303 million shares of Tesla at a discounted price, which was valued at $51 billion at the time of the court ruling. However, a drop in Tesla’s share value has reduced the package’s value to $40.7 billion. Despite initial shareholder approval in 2018, the court ruled that Musk and the Tesla board failed to prove the fairness of the compensation plan.
Tesla’s proxy statement argues that ratifying the pay package will restore shareholder democracy and highlights the significant growth in the value of shares since 2018. Musk has not received any payment for his work over the past six years due to the court’s decision, which the company views as unfair and inconsistent with shareholder wishes. Musk responded to the Delaware court decision by expressing his preference for incorporating Tesla in Texas or Nevada, leading to plans to move the company’s state of incorporation to Texas. Shareholders are being asked to approve this move as well.
The proxy statement does not announce a new pay package for Musk going forward, as the 2018 package was aimed at rewarding him for the financial accomplishments and market value that Tesla has achieved. Musk, who does not receive a traditional salary, had expressed the importance of increasing his stake in Tesla to maintain control over the company. The board was waiting for the court’s decision to proceed with a new pay package, potentially contingent on shareholder approval of the 2018 deal.
Opposing shareholders argued that the 2018 stock options package was excessive and that Tesla’s board lacked true independence from Musk to protect shareholders’ interests. They also contended that the financial targets for Musk’s qualifying for stock tranches were not challenging enough, essentially reflecting internal growth projections for economic stakeholders. Despite these concerns, Tesla shares remained relatively stable in premarket trading following the filing, with a 38% decline in value during the year due to sales drops and heightened competition in the electric vehicle market.
Tesla briefly lost its title as the world’s largest electric vehicles producer to Chinese automaker BYD in the fourth quarter of last year but regained it in the first quarter. To maintain demand for its cars, Tesla has reduced prices, impacting profit margins but remaining more profitable than traditional automakers like General Motors and Ford. Musk recently announced a global staff cut of over 10%, leading to the departure of several top executives from the company. The evolving situation reflects the challenges faced by Tesla and its CEO amid changing market dynamics and regulatory scrutiny.
