Tesla shareholders have overwhelmingly supported a groundbreaking pay package for CEO Elon Musk and agreed to relocate the company’s legal headquarters to Texas.
Earlier this year, a Delaware judge blocked the deal, raising concerns about its fairness to shareholders. However, this recent vote marks a significant win for Musk, who actively campaigned for the $56 billion (£43.9 billion) payout, dependent on Tesla’s stock price.
“Hot damn, I love you guys,” Musk exclaimed to a crowd of enthusiastic shareholders in Texas during the firm’s annual meeting.
This package is unprecedented, valued at over 300 times the earnings of the highest-paid U.S. CEO last year, and more than 3,000 times the average CEO’s pay. However, legal experts note that the vote is non-binding, and it’s uncertain whether the court that initially blocked the deal will accept this re-vote and reinstate the pay package.
“The vote changes nothing,” stated Mathieu Shapiro, managing partner at Obermayer Rebmann Maxwell & Hippel. “It only offers Tesla opportunities to try to use the vote to obtain a better decision going forward. It will be interesting to see if another court is willing to credit a vote taken after the trial court’s decision.”
The immense sum has sparked criticism and concerns that Tesla’s board is overly compliant with Musk. In January, Delaware judge Kathaleen McCormick labeled the pay package as “unfair” and criticized the process as “deeply flawed,” noting that the board was dominated by Musk loyalists.
Chancellor McCormick highlighted that Antonio Gracias, a former board director, had close personal ties with Musk, often vacationing with his family. Additionally, Todd Maron, Tesla’s former general counsel and Musk’s former divorce attorney, displayed such admiration for Musk that he was moved to tears during his deposition.
Following the Delaware court’s ruling voiding his pay package, Musk announced plans to move Tesla’s legal headquarters to Texas. This move comes amid declining Tesla stock prices and increasing pressure on its position in the electric vehicle market.
Despite these challenges, Musk successfully rallied his fan base, particularly individual investors, who form a significant portion of Tesla’s shareholders, to support the pay package. The proposal received 72% of the votes cast, closely mirroring the 73% approval in 2018 when it was first introduced.
“It’s a pretty ringing endorsement,” said Karl Brauer, a car industry analyst. Musk secured ample shareholder support “to justify the package,” he added.
Musk had hinted at the vote’s results on his social media platform, X, formerly known as Twitter. Following the announcement, Tesla’s stock closed nearly 3% higher.
The compensation plan grants Musk rights to around 300 million shares, equivalent to a 10% stake in the company, as a reward for Tesla meeting specific goals set in 2018 related to sales, profits, and the stock price. Tesla maintained that these goals were challenging, though the lawsuit leading to the Delaware court’s block alleged that the targets mirrored internal growth projections shared with banks.
“My understanding is that there’s been about 1,100% appreciation in Tesla stock. And that’s pretty, pretty impressive. Most chief executives have never done anything like that,” said Brauer.
Addressing whether Musk deserved such a substantial pay package, Georg Ell, Tesla’s former Western Europe director, told the BBC’s Today programme, “If I was an investor who put a substantial amount of money into this in 2018 and had held it throughout the period, I’d be very happy because I would have seen anywhere between… 13 and 16 times my money back. That’s a very, very good return.”
Ell disclosed that he owns a small shareholding in Tesla, worth about £6,000. Tesla’s board argued that Musk deserved the package due to the company meeting its targets under his leadership and stressed the necessity to keep him committed to the firm.
Ell emphasized that the vote result provides Musk with “a very strong validation.” He noted, “At Tesla of course he doesn’t do it all alone but he definitely sets the agenda, he sets the pace and he is a relentless person to work for, there’s no doubt about that.”
Tesla executives expressed support for Musk’s pay package in social media posts, underscoring his vital role in the company’s success. Musk, in turn, promised a personal tour of Tesla’s Texas factory to some shareholders who cast their votes.
Additionally, shareholders re-elected two board members during Thursday’s meeting: James Murdoch, son of media mogul Rupert Murdoch, and Kimbal Musk, Elon Musk’s brother.
