Elon Musk wins Tesla shareholders’ battle to keep his record salary

Tesla (TSLA) shareholders have reapproved Elon Musk’s record pay pact and signed a new incorporation in Texas, a show of support for the CEO as he fights legal battles on multiple fronts.

“Damn, I love you guys,” Musk said after the votes were tabulated, while speaking at the company’s annual shareholder meeting in Austin, Texas.

The company did not immediately disclose the percentage of shareholders who voted for or against a $56 billion compensation package that was awarded in 2018 and then overturned this year by a Delaware judge. The payment plan is now valued at about $48 billion.

It received 73% support when the pact was first granted six years ago.

Tesla shares rose slightly in after-hours trading. It rose 3% during market hours Thursday after Musk predicted that final outcome, saying both proposals were “passing by wide margins.”

Musk became the latest of many bosses this year who have successfully defeated attempts to reduce their pay.

Only two of the 340 companies that held such shareholder votes as of June 6 had their executive compensation packages rejected, according to ISS-Corporate. This 0.6% failure rate is lower than any full year since 2020.

But Thursday’s results may not mean the end of the corporate governance drama at Tesla.

On the one hand, shareholders dissatisfied with the result will be able to challenge its legality before the same Delaware court that annulled Musk’s payment earlier this year.

A shareholder already filed a lawsuit last week in that state challenging Tesla’s wage and redomestication proposals, alleging that Musk used “forceful and coercive tactics” in his efforts to persuade shareholders to ratify the proposals.

“Tesla is likely to end up back in Delaware courts defending the package against lawsuits,” Jerry Comíziobusiness law professor at American University’s Washington College of Law, told Yahoo Finance.

Comizio said shareholders can argue that the process that led to Thursday’s vote suffered from the same type of disclosure, corporate governance and fiduciary duty deficiencies that led a Delaware judge to invalidate the 2018 vote.

That judge, Kathaleen McCormick, ruled that Tesla’s board did not act “in the best interests” of Tesla shareholders in approving the $56 billion deal.

The central thrust of the McCormick decision, according to the corporate law professor at Case Western Reserve University School of Law Anat Alon Beckwas that Tesla’s board did not follow proper procedures and disclosures, nor did it address various conflicts of interest with Musk.

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“They always had the opportunity to do this, but they chose not to,” Alon-Beck said. “Instead, they materially failed to meet the shareholder disclosure obligations that have been the central tenants of Delaware law for decades.”

But corporate governance and compensation lawyer Bob Lamb said it’s possible the company disclosed enough this time to protect itself from additional litigation.

“[Y]You can’t disclose everything,” Lamm said. “At some point, the court is going to have to say, ‘Tesla, you did your job.’”

‘Motivating’ musk

The ongoing drama surrounding the vote intensified in recent weeks as Tesla President Robyn Denholm and Musk vigorously defended a newly presented pay package that was similar to the original 2018 award invalidated by the judge.

Publicly, Denholm presented an open letter asking for shareholder approval of Musk’s compensation package.

“Fairness and respect demand that we honor the collective commitment we made to Elon – a commitment that was, and fundamentally still is, about retaining Elon’s attention and motivating him to focus on achieving amazing growth for our company. “ Denholm wrote in your letter.

Denholm’s choice of words – “retain Elon’s attention and motivate him” – raised eyebrows, as most independent board chairs generally do not write open letters asking for shareholder approval of management compensation packages, much less claiming that compensation is necessary to keep the CEO motivated.

Even before the 2018 pay package was invalidated by the Delaware court, Musk threatened shareholders about their divided attention given that he is in charge of or spends a significant amount of time at SpaceX, X.com (formerly Twitter) and Boring Co., among other ventures.

“I’m not comfortable making Tesla a leader in AI and robotics without having 25% voting control. Enough to be influential, but not so much that it can’t be overturned.” Musk said on his X account in January. “Unless that’s the case, I would prefer to build products outside of Tesla.”

Case in point: Tesla recently had to deal with reports that Musk ordered Nvidia (NVDA) AI chips intended for Tesla to be diverted to X.com. Musk defended the measure after the report was released, claiming that Tesla did not have space to use the chips and, otherwise, they would have remained in a warehouse.

In the days leading up to the vote, there were even more legal distractions for Musk and Tesla.

On Tuesday night, the Employees’ Retirement System of Rhode Island (ERSRI) filed another lawsuit in Delaware accusing Musk and his brother Kimbal Musk of selling a total of $30 billion in shares using inside information – with the two knew the proceeds would be used to fund Elon’s plan. purchase of Twitter (now X) and that two brothers also knew that Tesla vehicle deliveries had fallen short of projections.

The Wall Street Journal also published a story on Tuesday night alleging that Musk had several inappropriate relationships with employees at SpaceX, the rocket and spacecraft company that Musk founded and where he still serves as CEO.

Then, separately, on Wednesday, eight former SpaceX employees filed a lawsuit against Musk for sexual harassment and retaliation in California state court, alleging that Musk created a “hostile and undesirable work environment” based on his behavior, among other allegations.

‘Key man risk’

Apparently, Musk was involved in some efforts to bring large shareholders to Tesla’s side.

He supposedly participated in recent meetings with proxy advisor Glass Lewis and money management giants Vanguard Group, State Street and BlackRock, all among Tesla’s top five institutional holders.

Glass Lewis and another proxy advisor, ISS, recommended that shareholders vote against the compensation.

But Tesla’s lobbying campaign has apparently been successful with at least some of these gargantuan investors. The New York Times reported Thursday that both BlackRock and Vanguard voted in favor of the pay package.

This time, Tesla shareholders had a little more information than they did before the vote on Musk’s salary six years ago.

At that time in 2018, no one knew that Musk would meet all of the deal’s revenue and operational milestones that unlocked his right to buy Tesla options for $70.

If Musk had not been able to meet growing revenue and market capitalization requirements, his CEO compensation based on stock options would have been zero.

There were some smaller shareholder groups this went against Musk’s pay package, as well as a big one: Norway’s $1.7 trillion sovereign wealth fund.

“We remain concerned about the total size of the award, the structure given to performance triggers, dilution and the lack of key person risk mitigation,” Norges Bank Investment Management (NBIM) said. the fund operator said.

The fund, which also opposed Musk’s pay package in 2018, holds a $5.6 billion stake, comprising 31.57 million shares, or 0.99% of all shares outstanding, making it Tesla’s seventh-largest shareholder, per Capital IQ.

And the California State Teachers’ Retirement System (CalSTRS) also said it would vote against Musk’s pay package, with the pension fund’s chief investment officer telling CNBC that the stock awards were “ridiculous.” CalSTRS owns about 4.7 million Tesla shares.

But some Musk supporters doubled down on the argument that his presence is necessary for Tesla’s future.

Longtime Tesla shareholder Baillie Gifford said he would vote in favor of Musk’s package, according to Bloomberg sources, on the grounds that the package was in line with shareholder returns.

“Elon is the ultimate ‘key man’ of key man risk,” billionaire Tesla investor Ron Baron wrote last week in an open letter arguing for passage of the pay package. “Without his tireless drive and uncompromising standards, there would be no Tesla.”

Some small shareholders took to social media to drum up votes and support for Musk. Someone posting on X as @TeslaBoomerMama said Thursday, before the final vote was announced, that “your votes will help remedy a true injustice.”

“Don’t mess with Tesla’s retail shareholders.”

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