Tesla Asks Shareholders to Reaffirm Elon Musk’s $56 Billion Compensation

Tesla Inc. CEO Elon Musk

Tesla Inc. is seeking shareholders' reconsideration on the same $56 billion compensation package for Chief Executive Officer Elon Musk that a Delaware court nullified earlier this year.

In its proxy filing released Wednesday, Tesla also indicated it would propose a vote on relocating the company’s state of incorporation from Delaware to Texas. The automaker is set to hold its annual meeting on June 13.

Tesla Chair Robyn Denholm criticized the Delaware Chancery Court’s ruling in January, expressing in the proxy that it amounted to scrutinizing shareholders who had previously endorsed Musk’s performance-based compensation in 2018. Chief Judge Kathaleen St. J. McCormick labeled the company’s directors as "supine servants of an overweening master" and claimed they had failed to prioritize investors' interests.

"Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value," Denholm wrote.

The shareholder who sued Tesla over the CEO’s compensation criticized it as excessive and opaque. Musk, who heads six companies, stated earlier this year that he would prefer to focus on artificial intelligence and robotics ventures elsewhere unless he owns a 25% stake in Tesla. Currently, he holds approximately 13% of the company.

Tesla shares climbed 1% as of 7:30 a.m. in New York before the commencement of regular trading. The stock had plummeted by 37% this year through Tuesday’s close.

Institutional Backing

Numerous institutional shareholders have reached out to Tesla expressing support for the 2018 compensation plan, including four of the top 10, according to the filing. The automaker also disclosed that thousands of individual investors have communicated their endorsement of the plan via letters and emails to the board.

Drafting a new compensation package would be time-consuming and entail billions of dollars in additional compensation expenses, the filing stated. Reaffirming the 2018 package would be expedient and "avoid a prolonged period of uncertainty regarding Tesla’s most important employee."

The filing reveals that Tesla contemplated nine alternative states to Delaware before shortlisting California, Nevada, New York, or Texas. Ultimately, it opted for the state where its headquarters are located and where its latest EV facility is situated.

"Tesla is all-in on Texas," the company affirmed. "Tesla’s corporate identity is increasingly intertwined with Texas."

The initiative to transfer Tesla's incorporation adds to the repercussions of the nullification of Musk’s compensation, which has already prompted the CEO to relocate several of his privately held enterprises. In February, he announced that SpaceX had applied to shift from Delaware to Texas. This move followed the reincorporation of Neuralink Corp., the brain technology startup founded by Musk, in Nevada.

In a social media post at the time on his platform, X, Musk advised, "If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible."

Tesla will also seek investors' reelection of two directors at the forthcoming shareholder meeting: Musk’s brother, Kimbal, and James Murdoch, son of media tycoon Rupert Murdoch. Kimbal Musk, a board member since 2004, holds the record for the longest tenure among the carmaker’s eight-person board. Murdoch joined in 2017.

Both were among the directors who agreed last year to relinquish over $735 million in stock awards and cash to settle a lawsuit filed by investors accusing the board members of granting themselves disproportionately large compensation packages.