Tesla investors back Musk’s US$56bn pay deal

Tesla investors have voted for chief executive officer Elon Musk’s compensation package and moving the company’s state of incorporation to Texas, signaling confidence in his leadership despite slumping sales and a precipitous drop in the stock price.

The electric-car maker announced the results at its annual meeting Thursday in Austin without disclosing the breakdown of votes. Musk had foreshadowed the outcome the night before in a post on X, saying both resolutions were “passing by wide margins.”

The pay vote is only advisory and doesn’t guarantee Musk will get his money. A Delaware judge nullified Musk’s 2018 compensation plan in January, and Tesla is expected to appeal. If that appeal fails, moving the company’s legal home to Texas would allow the board to revive the pay package in a new state with potentially more favourable courts.

The 2018 package, which passed with 73 percent of the vote, made Musk eligible for as much as US$55,8 billion in stock options if Tesla hit certain milestones. The current value of the options was closer to US$48,4 billion at the close of trading Thursday, according to the Bloomberg Billionaires Index.

Musk’s pay vote was widely seen as a referendum on the CEO’s leadership and frustration with Tesla’s corporate governance. Musk oversees six companies and is prone to distractions and abrupt strategy shifts. Earlier this year, he ordered up Tesla’s biggest layoffs ever only to rehire some of the workers weeks later.

Shareholders also voted to reelect James Murdoch and Kimbal Musk to Tesla’s eight-member board. Murdoch, son of media mogul Rupert Murdoch, has been a member of Tesla’s board since 2017. Kimbal Musk, younger brother to Elon, has been on the board since 2004.

Tesla shares rose 0,3 percent in extended trading at 5:58 p.m. in New York. Through Thursday’s close, the stock had fallen about 27 percent this year, compared with a 14 percent gain in the S&P 500 Index.

At the company’s Austin headquarters, Tesla shareholders cheered as Musk, wearing a black Cybertruck T-shirt, walked on stage. He leapt into the air as investors chanted his name and said, “Hot damn, I love you guys”

In a presentation, Musk hinted that the company was working on three new models, as he has in years past. He also noted that the Supercharger network was growing and that the company was speeding the production of Semi trucks. He said Tesla’s weekly output of Cybertrucks hit a record of 1 300 a week.

“A lot of people said Cybertruck was fake, never going to come out. Now we’re shipping a lot of Cybertrucks,” Musk said.

When asked what Musk was going to do with his billions, he explained that the pay package was structured as options and that he’d have to own Tesla stock for five years. “I can’t cut and run, nor would I want to,” he said.

Some investors were worried that Musk would leave the company if the award wasn’t reinstated. Musk has threatened to develop products outside of Tesla if he doesn’t attain at least a 25 percent equity stake in the carmaker. He owns about 13 percent of the shares now and exercising the options in his compensation deal would boost his holding to roughly 21 percent.

The carmaker pulled out all the stops in an effort to persuade shareholders to support both Musk’s pay package and the move to Texas. The company set up a dedicated “Vote Tesla” website and ran ads on X, Musk’s social media platform. In recent days, Tesla investors, engineers and current and former executives also took to X to voice their support for Musk and his leadership.

Some major investors including Norway’s sovereign wealth fund and the California Public Employees’ Retirement System had said they had planned to vote against the measure.

When Delaware Chancery Court Judge Kathaleen St. Jude McCormick voided the pay package in January, she pointed to board director conflicts of interest and the company’s failure to properly disclose terms of the plan.

The new shareholder vote may bolster Tesla’s chances with a forthcoming appeal.

McCormick will hear arguments July 8 on disputed lawyer fees in the case. Once McCormick decides on the fees, she’ll issue a final ruling. Musk then has 30 days to appeal it to the Delaware Supreme Court.

Late Thursday, Tesla issued a press release confirming that the company was now incorporated in Texas. The certificate of conversion was visible on the Texas Secretary of State website.

But Tesla couldn’t just approve the same compensation plan for Musk as in 2018, because Texas courts are legally obligated to honour the Delaware court’s decision, according to Charles Elson, a retired University of Delaware professor and corporate governance expert.

The board would have to make substantial changes to the plan and shareholders would then have to vote on Musk’s compensation once more, Elson said. Then, if an investor wanted to then challenge it, they would have to sue in Texas, which is just getting its business courts off the ground.

Bloomberg

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