Elon Musk, the well-known celebrity billionaire, owns Tesla Inc.. This company is going through a critical phase as it looks to shareholders to confirm its contentious $56 billion compensation package, first authorized in 2018. The action is a reaction to Kathleen McCormick, a Delaware judge, who recently rejected the payout, calling it “an unfathomable sum” that unfairly affects shareholders.
The Tesla board, chaired by Robyn Denholm, is making an extraordinary move by using a Delaware law provision to address what they believe to be a technical error in the initial approval procedure. Denholm highlighted how unjust it was that Musk had not been paid for his labor over the previous six years, which sparked discussion among investors and industry watchers alike.
The benefits package, praised as the biggest in corporate America, is designed without a salary or cash incentive and is only payable if Tesla’s market value soars to an incredible $650 billion over ten years. The package is currently valued at about $40 billion on the market, down from its initial $56 billion price. This disparity highlights the erratic nature of Tesla’s stock price and its significant influence on CEO pay.
Judge McCormick’s rejection of Musk’s pay sparked concerns about the fairness of the negotiation process and accusations that Musk had undue influence. The impact of her decision was felt throughout the corporate world, leading to an examination of Tesla’s governance procedures and the board members’ close relationships with the billionaire businessman Elon Musk, especially his brother, Kimbal Musk.
Legal professionals, including Columbia Law School’s Eric Talley, warn that shareholder approval fails to ensure that Musk will receive funding immediately. Instead, it seeks to correct voting procedure errors from the first round. Meanwhile, any payment would depend on Musk’s ability to successfully challenge the court’s conclusions about his role in negotiating the incentive package.
Tesla’s plan to change its state of incorporation to Texas, reminiscent of actions taken by Musk’s other businesses, such as SpaceX and Neuralink, is another example of his tense relationship with Delaware. This change highlights the more profound animosity between Musk and Delaware and raises the possibility of a jurisdictional conflict.
Beyond executive remuneration and legal disputes, Tesla’s growing issues are not limited to those. The company has seen a turbulent year with a steep decrease in stock value, down more than 36%, due to worldwide challenges impacting sales of electric vehicles. Analysts doubting the company’s future have closely examined strategic moves, including making labor reductions and giving up on ambitions for an inexpensive EV.
Brian Dunn, a lecturer at Cornell University’s School of Industrial and Labor Relations, describes the shareholder re-vote as proof that the board’s credibility has been undermined. Dunn highlights the shortcomings in the first compensation plan and notes Musk’s efforts, but she also calls attention to the need for responsibility and transparency in CEO salary.
The result of the shareholder re-vote and possible legal actions are major concerns for Tesla as it prepares to release its quarterly earnings report. The electric vehicle manufacturer is facing a turning point in its development that will determine how it is governed going forward and how it will proceed strategically in a market that is becoming increasingly competitive.
