Tesla Shareholders Endorse Musk’s Controversial Pay Package Amid Legal Uncertainty

Tesla shareholders recently ratified CEO Elon Musk’s contentious 2018 pay package, currently valued at $45 billion, despite a Delaware judge’s ruling to rescind it. This vote took place during Tesla’s annual meeting in Austin, Texas, and while it does not override the court’s decision, it represents a significant public relations victory for Musk. This shareholder approval might assist Musk in securing his performance options in the future. After the preliminary results were announced, Musk enthusiastically addressed the shareholders, expressing his gratitude and optimism.

The compensation package, initially valued at $56 billion before a decline in Tesla stock reduced its value to $44.9 billion, faced harsh criticism from a Delaware court in January. Judge Kathaleen McCormick criticized Tesla’s board for its lack of independence from Musk and for failing to properly negotiate and inform shareholders about the pay plan. Despite this, Tesla shares saw a 2.9% rise on Thursday, closing at $182.47, following Musk’s announcement on X that the proposal was likely to pass. Nevertheless, the stock remains down 27% for the year due to declining sales and increased competition in China.

In addition to ratifying Musk’s pay package, shareholders approved relocating Tesla’s incorporation from Delaware to Texas, home to Tesla’s largest U.S. factory. Other proposals, including the re-election of Musk’s brother Kimbal Musk and James Murdoch to the board, were also passed. Shareholders further increased their control by approving measures to shorten board terms to one year and lower voting requirements for proposals to a simple majority, despite the board’s opposition.

At the previous shareholder meeting in May 2023, Musk predicted economic improvement within a year, announced Cybertruck deliveries for late 2023, and revealed plans to experiment with advertising. Recent economic indicators show some improvement, and Tesla has started advertising on X, the social media platform Musk acquired for $44 billion in late 2022. Despite his promise to spend less time on X, Musk remains heavily involved in other ventures, including SpaceX, Neuralink, and xAI, a company developing large language models and an AI chatbot called Grok.

Musk, describing himself as “pathologically optimistic,” assured shareholders of Tesla’s significant progress in vehicle autonomy, predicting that this technology could greatly increase the company’s value. Although Musk has been promising self-driving technology since 2016, competitors like Pony.ai, Didi, and Waymo already operate commercial robotaxi services.

Legal experts suggest that the lawsuit over Musk’s pay package could continue for months. The Delaware judge invalidated the pay package, describing it as “unfathomable” and criticizing the board for its close ties to Musk. The judge will probably carefully examine the most recent shareholder vote to make sure Musk did not improperly influence or coerce it.

Shareholders’ approval of Musk’s compensation serves as both an endorsement of his leadership and an acknowledgment of their reliance on him for the company’s future. Despite concerns about his attention being divided among multiple ventures, shareholders are willing to overlook potential risks, viewing Musk as essential to Tesla’s success. This vote reaffirms the shareholders’ support for Musk, sending a clear message that they believe he deserves to be rewarded for meeting the ambitious targets set in his incentive-based contract.