At the annual gathering of Tesla in Austin, Texas, stakeholders will have the opportunity to cast a final vote on a controversial proposal urging shareholders to “approve the 100% performance-driven stock option grant to Elon Musk” awarded in 2018.
Despite potential approval from investors, the final decision rests with the judicial system.
The proposal, one of twelve for shareholders to review, is on the ballot due to a ruling from a Delaware court in January that instructed the annulment of the compensation package given to the Tesla CEO. This package included performance-based stock options valued at approximately $56 billion.
Judge Kathaleen McCormick concluded that Tesla’s board lacked impartiality from Musk, neglected to engage in fair negotiations with the CEO, and failed to provide shareholders with complete information before requesting their vote on his 2018 compensation plan.
Ann Lipton, an expert in corporate and securities law who currently educates at Tulane Law School, mentioned that shareholders lack the authority to overturn the judge’s decision.
“Some individuals mistakenly believe that voting in favor will resolve the legal conflicts,” Lipton conveyed via email. “However, it will only add complexity to the situation.”
A vote endorsing the reinstatement of the pay plan could serve as a public relations victory for Musk, who is confronting several significant challenges at Tesla and beyond. The electric vehicle manufacturer is grappling with declining sales, increased competition, predominantly in China, and a tarnished brand that a recent survey partly attributed to Musk’s “controversial actions” and “political commentary.”
Notable institutional investors such as CalPERS, CalSTRS, Norway’s Sovereign Wealth Fund, and SOC Investment Group have vocally opposed endorsing the payment plan.
“The compensation level, in comparison to executives at similar firms, excessively dilutes shareholder equity and lacks linkage to Tesla’s long-term profitability,” criticized CalPERS CEO Marcie Frost in a statement on Wednesday.
In contrast, Tesla revealed in an April filing that several institutional shareholders disagreed with the court’s ruling and expressed intent to support a grant to reinstate Musk’s compensation.
Sarath Sanga, a professor at Yale Law School, highlighted that the proposal to validate Musk’s remuneration scheme is Tesla’s endeavor to rectify what the court identified as a “faulty process” under the 204 statute of Delaware business law.
“An autonomous board must negotiate with the CEO, and all pertinent details must be presented for a vote,” stated Sanga. “But the court indicated this was not done. Even a majority vote for validation is likely to face challenges necessitating further legal scrutiny.”
A decisive approval from shareholders for the payment scheme could potentially sway the court in favor of granting Musk similar options in the future, Sanga pointed out.
Most Tesla shareholders had to submit their votes by the end of Wednesday. Those present are eligible to vote either in-person or online on Thursday.
In addition to the remuneration package vote, shareholders will also determine whether Tesla should relocate its incorporation site from Delaware, where most large publicly traded firms are registered, to Texas, the location of Tesla’s biggest U.S. factory.
Musk’s suggestion for the corporate shift follows McCormick’s ruling in the Delaware Chancery court.
Shareholders have also introduced a motion urging Tesla to provide “yearly reports on anti-harassment and anti-discrimination efforts.” Despite facing legal challenges related to alleged sex and race discrimination, the company has urged shareholders to reject the idea.
Tesla’s shares have plummeted by 29% this year, significantly underperforming the Nasdaq, which has seen a 17% increase. Musk has been encouraging shareholders to look to the future, highlighting artificial intelligence software, robotaxis, and robotics as pivotal.
“Investors who doubt Tesla’s ability to achieve autonomy should reconsider their stake,” Musk emphasized during the latest earnings call in April. “We will deliver.”
Despite Musk’s consistent assurances of groundbreaking software for self-driving cars since 2016, competitors like Pony.ai, Didi, and Waymo have already developed robotaxis and commenced commercial services.
