Tesla shareholders to vote on Musk’s billion-dollar payout

NY – Elon Musk, the controversial CEO of Tesla, and his enormous wealth will be the main topics of a shareholder vote this coming week.

A Delaware judge invalidated the largest-ever compensation package that Telsa’s amiable board had given Musk in 2018, which was valued at over $50 billion at the time. This decision was made five months ago. Now, Musk and the board want Tesla’s shareholders to vote once more to grant him those stock options in addition to moving tesla company share price completely out of the judge’s state.

And his board is threatening to withhold from them the attention they require from Musk in order to turn around a company that is experiencing its worst problems in a number of years if they don’t comply. When the company peaked in late 2021 and was valued at $1 trillion, the price of Tesla’s stock fell by more than half. Tesla’s sales have not met expectations, and on Thursday, the company will hold its annual shareholders meeting and reveal the outcome of the votes held by shareholders on two proposals. The bundle of 303 million split-adjusted stock options, which, at Friday’s closing price, were valued at $46.9 billion, would once more be approved. That represents a decrease from the $51 billion those options were valued at the time the choice was made.

73% of the shareholders voted in favour of the package when it was approved back in 2018. However, in January, Delaware Chancery Court Chancellor Kathaleen McCormick made a decision that supported the shareholders who had contested the package. In her letter, she stated that the board of the company “failed to meet their burden of proving that the compensation plan was fair.”

According to McCormick, the Tesla board’s process for determining the compensation package was “deeply flawed,” and the board was chastised for being too close to the well-known CEO to adequately represent the interests of the shareholders.

She stated, “Musk initiated a self-driving process, adjusting the speed and direction along the way as he saw fit.”

In response, Musk and Tesla filed an appeal with the court and asked shareholders for approval to change the company’s incorporation state from Delaware to Texas, the location of its headquarters. Numerous large corporations are incorporated in a state other than their primary headquarters, most frequently Delaware, which is known for being business-friendly. McCormick was able to make a determination regarding the fairness of the compensation package due to Tesla’s incorporation in Delaware.

Although Musk’s compensation package was widely supported by shareholders in 2018, the Tesla board appears to be rushing to shore up support for this month’s vote. Compared to most companies, it has been far more active in asking shareholders to approve its proxy items, having filed more than two dozen communications with shareholders urging a yes vote with the SEC. It has even launched a lottery where the victorious shareholder who casts a ballot receives an exclusive tour of Tesla’s Texas factory from Elon Musk.

Holding Musk’s focus

According to Tesla’s shareholder filings, the compensation package is necessary to keep Musk completely focused on managing Tesla and not one of his other businesses.

In a letter to shareholders, Tesla Chair Robyn Denholm stated, “This is obviously not about the money.” “Elon is undoubtedly one of the richest persons on the globe, and he would continue to be so even if Tesla were to back out of the agreement we reached in 2018.” Tesla is not a typical company, and Elon is not your average executive.

It’s more about “what will motivate him to continue to create value for stockholders,” she wrote, instead of stopping there.

Denholm wrote, “What we realised in 2018 and still realise now is that one thing Elon most definitely does not have is unlimited time.” He also has no lack of inspiration or additional opportunities to change the world for the better. For the benefit of you, our owners, we would like those concepts, that energy, and that time to be at Tesla. However, that calls for mutual respect.Gaining support, however, is hampered in part by the fact that Musk is now far less focused on running Tesla and far more controversial than he was in 2018.

In 2022, he famously paid $44 billion for the social media platform Twitter, using $22.9 billion in proceeds from the sale of his Tesla shares to finance the acquisition. Even worse, he has been charged with selling $7.5 billion worth of those shares fraudulently towards the end of that year, knowing full well that Tesla would soon report weak sales and have to lower its price.
Since Twitter rebranded itself under his leadership, he has restored the accounts of users banned for using hate speech, inciting violence, or spreading false information. In the meantime, numerous advertisers have left the platform due to claims of pervasive antisemitism and Musk’s personal support of antisemitic tweets. This has resulted in significant losses.

What worries Tesla shareholders even more, though, may be the company’s internal issues as an electric car pioneer. Between the time the original package was approved in 2018 and its peak in November 2021, when Musk became the richest person in the world, the value of the shares increased by more than 1,700%; however, since then, the value of the shares has dropped by more than half, including 30% this year.

Due to lower-than-expected sales and heightened competition from other automakers releasing EVs, Tesla was forced to lower its prices.

“This shareholder vote is taking place during Musk’s most vulnerable moment,” said Dan Ives, a tech analyst at Wedbush Securities who remains positive about Tesla stock.

Following its Cinderella ride, stock price tesla today  is now a horror film. A faction of shareholders is experiencing frustration. And this serves as a warning to them that they are not happy.

Ives predicted that this vote will be much closer even though he believes shareholders will once more approve the compensation package. He stated that despite Tesla’s issues and the controversies surrounding Musk, many investors think it is imperative for the company’s future to keep him on board and concentrate on Tesla rather than SpaceX, his new artificial intelligence company xAI, The Boring Company, Neuralink, his rebranded social media company X, or his other endeavours.

Musk has even stated that, absent a compensation plan that would grant him ownership of about 25% of the company’s stock, he would not want to see Tesla develop into a leader in robotics and artificial intelligence, as he has promised. That would be nearly twice as much as the roughly 13% that he presently holds.

Ives stated, “It all boils down to Musk.” “The heart and soul of the Tesla growth story remains Musk.”

Supporters, opponents to Musk options

Before the vote, a number of well-known investors supported Musk. Among them was Ron Baron, CEO of Baron Capital, which owns a $2 billion stake in Tesla and is one of the company’s top holdings.

“In 2018, few people thought that Elon’s aggressive performance metrics, which were part of his compensation contract, could be met. In a recent statement, Baron stated, “Elon would not have received anything if these aggressive performance metrics had not been achieved.” Tesla’s shareholders reaped significant rewards when the company met its goals for earnings, revenues, and market capitalization. He fulfilled his performance agreement. He deserved to be paid. The ultimate “key man” is Elon. Without his unwavering determination and unbending standards, Tesla would not exist.

However, there are also well-known opponents of the agreement, such as Glass Lewis and Institutional Shareholder Services, two companies that counsel investors on proxy voting. They both advocate against voting on Musk’s package.

ISS stated, “The award value was considered outsized from the start.” The board’s argument that it would be unfair for CEO Musk to not receive the award might hold weight with some investors. Nevertheless, the issues brought up in 2018 and since have not been adequately addressed.

The argument that Musk would not receive compensation if the original package was thrown out was rejected by McCormick, who stated that Musk was compensated for his efforts with tens of billions of dollars thanks to his preexisting equity stake.

And regardless of the outcome of this month’s shareholder vote and their approval of Texas incorporation, the Delaware courts may still have the final say over whether Musk is granted permission to reclaim the options.

Tesla’s attorneys have informed the Delaware court that the company’s intention to relocate its incorporation to Texas is not a means of dodging the jurisdiction of the initial Delaware court order, which is still under appeal.

However, Musk’s desire to stay involved with Tesla, the company that made him so wealthy and well-known before he became so controversial, may depend on the result of the vote.

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