Should Elon Musk be paid $56 billion? Tesla shareholders get to vote

This may be the competition with the highest popularity in history.

Friends and enemies of tech billionaires Elon Musk is in the midst of a two-month battle over whether to restore its record $56 billion pay package Tesla CEO, a few months later Delaware judge knocked out his compensation as being awarded improperly.

The fight comes in the form of a shareholder vote: Nearly all owners of Tesla stock, including Wall Street firms and thousands of individual investors, are voting for or against the package pay, most voted online ahead of the automaker’s June 13 annual meeting in Austin, Texas.

The question before shareholders: whether to support the pay package they initially approved in 2018 but that a Delaware judge said was illegal under that state’s corporate law.

This vote is unusual not only because of the wealth Musk will gain – it is 250 times greater than the average of Musk’s peers, according to the judge who canceled it in January — but also because of both sides’ public and private fighting over the pay vote.

Tesla bought advertising And Launch a website to try to convince investors to vote for the package — a tactic experts say is unprecedented in the debate over a corporate executive’s pay. Some Musk supporters are also making online videos and reaching out to potential voters one by one, as if this were an election for public office.

But opponents of Musk’s compensation agreement are also becoming increasingly organized. Several investors issued a joint letter this month appealing to shareholders Vote against the package exceed.

The vote is a test of investors’ continued faith in Musk, who has become an increasingly polarizing public figure, not least because His extreme viewsincluding immigration and transgender issue. As one of the richest people in the world, he has a loyal fan base.

James Park, a law professor at the University of California, Los Angeles, said investors are likely thinking about a range of factors in deciding whether to reward Musk for his CEO performance.

“Partly this will be a popularity contest, but I think shareholders will also make a hard-fought calculation about whether it’s worth paying this amount of money to ensure that you Did he go somewhere else or not?

Musk has it all but threatened to abandon Tesla if he does not receive additional shares in the company. In January, he posted on X that he “wanted to build products outside of Tesla” if he didn’t have 25% voting control of the company. As of January, he held about 13% of the company’s shares, according to CNBC.

Musk’s attention was divided. He is also the CEO of rocket company SpaceX, owner of X and co-founder of brain science startup Neuralink.

The amount of money at stake is huge, even by Musk’s standards. According to statistics, he has a net worth of 191 billion USD. Bloomberg Billionaires Index, so the gift package is equivalent to more than 1/4 of his assets. Musk was never paid: At the time the bid was invalidated, he had stock options equivalent to 304 million Tesla shares but had not yet exercised his right to buy them, according to the Delaware ruling.

Tesla shareholders approved a pay package in 2018, with compensation tied to Tesla’s performance, including its market value. Even then there was dissent, with 73% voting in favor compared to the typical 95% approval level for the company’s CEO salary, Reuters reported.

To some of Musk’s critics, the vote on whether to revive the $56 billion package was a blatant attempt to circumvent a ruling by Delaware Chancery Court Judge Kathaleen McCormick. She ruled in favor of some Tesla shareholders who argued the salary was unfair in part because the board approved it. too close to Musk to be completely independent and shareholders do not know all the facts.

“At least for this transaction, Musk controlled Tesla,” McCormick wrote in his ruling.

Nadya Malenko, a finance professor at Boston University’s school of management, said the situation is far from the textbook model of how to run a large corporation.

“These are not good examples of governance,” she said, pointing to the conflicts and lack of transparency that came to light in the Delaware case.

After the Delaware ruling, shareholder plaintiffs’ attorneys asked the judge to award a record $6 billion to lawyers to win cases. The judge did not rule on that request, and Tesla’s board said in a proxy statement that the fee may not be warranted if shareholders re-approve the compensation package.

Musk and the board said they plan to appeal McCormick’s ruling, and they hope a second vote will in effect dispel McCormick’s concerns about the pay package. The board of directors is also asking shareholders to approve the transfer of Tesla’s state of incorporation to Texas.

But it’s unclear whether a second shareholder vote would survive a court call, said Ann Lipton, a Tulane University law professor. She said even if a majority of shareholders vote “yes,” there will almost certainly be additional litigation in Delaware — meaning the case will continue.

“This has never been done before,” Lipton said, calling the whole matter unprecedented. “This idea, after a trial, after a finding of breach of fiduciary duty, to re-vote – I’ve never known anything like this happen before.”

From a legal standpoint, Lipton said, the company’s board has a mandate to maximize shareholder value, and it’s unclear how this pay package benefits shareholders in a tangible way. The $56 billion, she said, would be the amount of repayment for the period since 2018, when Musk completed his work, and if it were framed as a reward or a gift, the court would still have may rule that it is unreasonable.

“Gifts are good. Gifts are fine. But a gift of company property without a corresponding benefit would be considered ‘waste’ under the law,” she said. wrote in a blog post.

Some Musk supporters say that despite the Delaware ruling, they view the 2018 pay package as a promise that Tesla should follow as long as Musk keeps his end of the bargain by meeting the package’s performance goals .

“A deal is a deal,” several investors posted on Musk’s social media app X, along with a screenshot confirming that they voted and the hashtag #VotedTesla24.

The performance requirements set in 2018 are based on three factors: Tesla’s market capitalization, revenue and profits. Musk has delivered on some of that, growing in market capitalization – a measure of a company’s value – from $59.1 billion in 2018 to more than 570 billion USD This year. And he still has time to hit the goals he hasn’t yet met, including on revenue, because the pay package is 10 years long.

inside The proxy statement is 440 pages long Explaining the vote, a committee of Tesla’s board of directors noted “novel circumstances.” It recommended approval to “avoid further uncertainty regarding Mr. Musk’s salary and motivation.” The commission wrote that it could not predict the court’s ultimate outcome if some shareholders objected to the vote.

The shareholder voting process is so complicated that some Musk fans have resorted to creating instructional videos and posting them to X, Musk’s social media app. Some shareholders can vote online themselves, while others must do so through a broker. A Musk fan, using the handle @TeslaBoomerMama on X, is asking shareholders to fill out a form for assistance if they have any difficulty voting.

It’s the kind of public and private fight that sometimes happens when there’s an election for corporate board seats — as there was this year to the Disney board of directors – but not when the issue is compensation.

So far, most institutional investors have not said how they will vote. One shareholder in the top 10, T. Rowe Price, expressed support but did not announce a vote in favor.

“We do not think it is fair to introduce a new set of options in the face of a new set of performance hurdles,” the company wrote in a letter to Tesla’s board. The requirements of the 2018 package were extremely ambitious – and they were met.” according to the proxy statement.

But T. Rowe price told Reuters in April that it was too early to say how the company’s funds would vote. The company did not immediately respond to a request for comment on Friday.

New York City Comptroller Brad Lander is one of the institutional investors Sign a joint letter protest, along with union-owned Amalgamated Bank.

“Shareholders should not pretend that this award has any kind of incentive effect – it does not,” they wrote. What it has is an overreaching problem, which has been clear from the start.”

Shareholder votes are not made public unless investors share how they vote. Some people started sharing screenshots of their votes in April, shortly after the Tesla board announced the vote and the online voting deadline was June 12. Some people can also vote in person at the annual shareholder meeting on June 13. meeting or immediately afterward.