The shareholders of Tesla have been fighting for months over a pay package that was promised six years ago to Elon Musk. Now, Musk and the board are asking Tesla shareholders to vote again to reapprove those stock options – grants that are now valued at approximately $56 billion. They have also demanded that Tesla be moved out of Delaware.
The board is warning that if Tesla shareholders disagree, Musk may not give the attention needed to turn around the company. This may be an issue since they are facing the biggest challenges in years as Tesla’s stock price has dropped by more than half since its peak in 2021 – a trillion-dollar company.
But the wait is coming to an end! On Thursday, June 13th, Tesla will hold its annual meeting, where shareholders will decide whether to reinstate the deal. Unfortunately, the outcome could change Elon Musk’s relationship with the company, and officials are not willing to take any chances.
Tesla’s Chair, Robyn Denholm, wrote to investors, “If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal.”
Regardless of the shareholders’ vote, the issue may arise with additional lawsuits and other legal conflicts that may be resolved in the corporate legal system. The result may favor Elon Musk, but it will likely appeal to the Delaware Supreme Court as well.
Back in 2018, the shareholders approved Musk’s package. However, in January, Chancellor Kathaleen McCormick, Delaware’s Court of Chancery judge, initially rejected the compensation scheme as she stated that the company board “bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.”
In fact, McCormick criticized the process used by the Tesla board to create a correct pay package, saying that it is “deeply flawed” and accusing it of being too close to the CEO to represent the shareholders’ interests fairly.
This time, in response to the ruling, Elon Musk and Tesla filed an appeal seeking permission from the company’s shareholders to relocate from Delaware to Texas, where the headquarters are situated. Tesla’s incorporation in Delaware allowed McCormick to rule on the deal's fairness.
However, Musk stated that he wouldn’t pursue Tesla’s growth into a leader in AI and robotics as he previously promised unless the deal is sealed. So, if the new vote doesn’t settle the issue, there may be some challenges regarding Tesla’s future if the vote doesn’t go Elon’s way.
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