Tesla Chairman Defies Court Ruling on Musk's Record-Breaking Pay Package

Tesla faces shareholder vote on Musk's $56B pay package after court ruled it "deeply flawed." Governance concerns linger as Tesla struggles with falling sales and stock price.

Nimrah Khatoon
New Update
Tesla Chairman Defies Court Ruling on Musk's Record-Breaking Pay Package

Tesla Chairman Defies Court Ruling on Musk's Record-Breaking Pay Package

Tesla is asking shareholders to vote again on CEO Elon Musk's $56 billion pay package after a Delaware judge voided it earlier this year, ruling that the record-setting compensation deal was "deeply flawed." The judge accepted shareholder lawyers' argument that Musk personally dictated the pay package in sham negotiations with directors who were not independent.

Tesla Chair Robyn Denholm criticized the court's decision, saying it created a "fundamental problem for the company." The electric vehicle maker is set to hold its annual shareholders meeting on June 13 and is looking to re-ratify Musk's 2018 pay package, arguing that "corporate democracy and stockholder rights" are at stake.

The announcement came days after news that Tesla would reduce its workforce by 10% globally, equivalent to at least 14,000 roles. The company is also seeking shareholder approval to move its incorporation from Delaware to Texas, which Musk had suggested after the pay package was ruled illegal.

Why this matters: The legal battle over Musk's compensation highlights the ongoing debate about excessive executive pay and the role of independent directors in corporate governance. The outcome of the shareholder vote could set a precedent for how companies handle similar disputes in the future.

Tesla argued that Musk has delivered on the growth targets tied to the pay package and that the court's decision is "fundamentally unfair." However, even if shareholders approve the package again, it may still face further legal challenges. The company's recent struggles, including falling global sales and a declining stock price, may make it difficult to justify granting Musk billions in retrospect for past achievements.

Shareholders will have the opportunity to send a message to Musk and the board at the upcoming annual meeting. In addition to the pay package, they will vote on reducing directors' terms to one year and re-electing two board members, including Musk's brother Kimbal Musk. Experts argue that Tesla's corporate governance remains problematic, with Musk's involvement in other companies like Twitter raising concerns about his divided attention.

"The economics of the package are questionable, as Tesla's market capitalization is currently around $500 billion, lower than the $650 billion target that was set in 2018," said a law professor at Tulane University. "The legality of re-approving the pay package is also uncertain, as the judge had previously ruled that the shareholders' original vote was not fully informed."

Key Takeaways

  • Tesla asks shareholders to re-vote on Elon Musk's $56B pay package.
  • Delaware judge voided the package, calling it "deeply flawed" and dictated by Musk.
  • Tesla plans to move incorporation from Delaware to Texas, amid legal challenges.
  • Shareholders to vote on reducing directors' terms and re-electing Musk's brother.
  • Experts question the legality and economics of the pay package re-approval.