Tesla is seeking shareholder approval for the 2018 pay package that made CEO Elon Musk one of the world’s richest people. The pay package included options for Musk to buy 303 million shares of Tesla at $23.34 each, which was worth $51 billion at the time. However, a decline in Tesla’s share value has since lowered the package’s worth to $40.7 billion. In 2018, 73% of non-Musk shares voted in favor of the package.
The Delaware Chancery Court ruled in January that Musk and the Tesla board failed to prove that the compensation plan was fair, leading to the package’s rejection. Tesla argues that the package was fair because it resulted in shareholder value growth. The company’s proxy statement aims to restore stockholder democracy by asking for ratification of the pay package and approval of Tesla’s move of incorporation to Texas, where its headquarters is now based.
Musk receives no traditional salary from Tesla and compensation is based on stock options tied to company achievements. Musk had expressed the importance of increasing his stake in Tesla to prevent outside investors from taking control. The board had been waiting for the court’s decision before announcing a new pay package. It is unclear if a new package will be introduced if shareholders approve the 2018 deal again.
Shareholders who brought the lawsuit against Tesla argued that the package was excessive and that directors on the board were not independent enough to protect shareholder interests. They also claimed that the financial targets for Musk to receive stock options were not challenging enough, suggesting that the original vote was deceptive. Tesla’s shares have fallen by 38% this year amidst increased competition in the electric vehicle market and weaker-than-expected demand growth.
Despite briefly losing its top spot as the world’s largest electric vehicle producer to Chinese automaker BYD, Tesla regained the title in the first quarter. The company had to lower prices to maintain demand, reducing profit margins. Musk announced layoffs of 10% of Tesla’s global workforce, signaling challenges within the company. Top executives have also departed. The story was updated with additional context and reporting, reflecting the ongoing developments at Tesla.
