Tesla shareholders approve Elon Musk’s $56Bn pay package

Tesla shareholders, at their annual meeting held in Austin, Texas, voted in favor of ratifying Musk’s controversial $56 billion performance-based pay package, originally approved in 2018. However, this vote serves as only one piece of a complex puzzle, with a Delaware court still holding the key to whether Musk actually receives the massive payout.

The compensation plan, originally approved by investors in 2018, is considered the largest in U.S. corporate history. It was designed as a performance-based incentive, with Musk eligible to receive nearly 300 million stock options contingent upon Tesla achieving specific milestones in market capitalization, revenue, and profitability.

However, earlier this year, the Delaware Court of Chancery invalidated the compensation package, ruling that Tesla’s board failed to provide adequate disclosures about Musk’s role in formulating the plan. At that time, the court highlighted that the board members, many of whom had close ties to Musk, did not negotiate the terms at arm’s length, thereby compromising their independence. The court’s decision was a significant setback for Musk, prompting Tesla to seek shareholder approval once more.

Despite the court’s ruling, Tesla mounted a vigorous campaign to secure shareholder approval for the package. Preliminary voting results indicated strong backing from both institutional investors and retail shareholders. Following the announcement, Tesla shares experienced a 0.7% rise in after-hours trading and a 2.9% gain in the subsequent session. Tesla’s share price is currently at $182.47. In addition to voting on the compensation package, shareholders approved the relocation of Tesla’s legal domicile from Delaware to Texas. Texas offers a potentially more business-friendly environment, with lower taxes and less stringent regulations, which aligns with Musk’s recent focus on ramping up production at Tesla’s Gigafactory in the state.

Not all shareholders were in favor of the package. Gregory Varallo, representing dissenting shareholders, criticized the ratification vote, labeling it “deeply flawed as a matter of law” and “legally ineffective.” He emphasized that the vote does not resolve the legal issues surrounding the compensation plan. Critics argue that the package is excessively generous, particularly given Musk’s involvement in other ventures such as SpaceX, Neuralink, and xAI, which could divert his focus from Tesla.

Musk later expressed his gratitude to shareholders with a characteristically enthusiastic statement: “Hot damn, I love you guys.” He suggested that the approval of the pay package was crucial for his continued leadership at Tesla, hinting that he might have reconsidered his role without it. Still, as mentioned earlier, the approval of Musk’s compensation package does not mark the end of legal challenges. The Delaware court’s final ruling will determine whether Musk will ultimately receive the stock options.