Tesla shareholders are voting to agree to a $56 billion payment plan for Elon Musk and to relocate the electric vehicle company’s legal headquarters to Texas, according to Musk’s announcement on social media platform X. Musk added that the approval was by a large margin.
A positive vote provides Tesla with stronger support in a Delaware court, where a judge nullified the 2018 payment plan, the largest in U.S. corporate history at that time, stating that the board was too influenced by CEO Musk.
This outcome is a significant victory for Musk and the board, who have staked their reputations to secure shareholder approval, despite opposition from major investors Glass Lewis and Institutional Shareholder Services (ISS).
“Thanks for your support!!” Musk expressed in his post on X.
Both Tesla shareholder resolutions are currently passing by wide margins!
— Elon Musk (@elonmusk) June 13, 2024
♥️♥️ Thanks for your support!! ♥️♥️ pic.twitter.com/udf56VGQdo
The final result will be revealed at a meeting at Tesla’s Texas headquarters at 4:30 pm (2130 GMT) on Thursday.
An individual familiar with the initial voting count mentioned that a combination of large institutional investors and retail investors pushed the ‘yes’ vote across the finish line.
However, shareholders can alter their vote until the start of the annual meeting.
Tesla shareholders also voted on other proposals, including relocating its legal headquarters from Delaware to Texas, and the reelection of two board members: Musk’s brother Kimbal Musk and James Murdoch.
REFERENDUM
Some investors saw the vote on Musk’s payment as a gauge of confidence in his leadership. Despite being Tesla’s driving force and credited with much of its success, the company has recently experienced slowing sales and profits.
Tesla’s stock has dropped nearly 60% from its peak in 2021, when Musk began selling billions of dollars of his stake, partly to fund his acquisition of Twitter, raising concerns about his divided focus. He currently oversees six companies, including SpaceX, X (formerly Twitter), and the AI firm xA1, created in 2023.
Musk’s outspoken nature and propensity for controversy have also impacted Tesla’s reputation and sales.
Tesla’s stocks rose by 3.9% on Wednesday, a day before the shareholder meeting.
Shareholders, led by major institutional investors, criticize such compensation as overly generous for a leader who divides his time among six companies and oversees declining sales and strategic changes at Tesla.
The payment plan would allow Musk to increase his ownership “at the expense of diluting the value of other shareholders,” said Marcie Frost, CEO of the California Public Employees’ Retirement System earlier on Wednesday.
Tesla has been rallying support for Musk’s payment plan, particularly from retail investors, who represent a significant portion of its ownership but often do not participate in voting.
Company executives have utilized social media to emphasize Musk’s importance to Tesla’s success. Tesla has run social media advertisements, and Musk has pledged personal tours of Tesla’s factory in Texas to some shareholders who cast votes.
The board argues that the world’s wealthiest person deserves the payment plan because he achieved all the ambitious targets for market value, revenue, and profitability.
The payment plan is also necessary to ensure Musk’s commitment to Tesla, despite the Delaware judge’s criticism that the 2018 plan failed to ensure Musk’s substantial time commitment to Tesla.
Musk has warned that if he doesn’t gain enough voting control, which requires approval of the 2018 payment plan, he will develop AI and robotics products outside of Tesla.
Earlier this month, Tesla shareholder Donald Ball filed a lawsuit challenging the upcoming shareholder vote, alleging that ratifying the payment plan should be invalidated because Musk has used coercive tactics to obtain shareholder approval.
COURT BATTLE
The same payment plan was previously rejected by a Delaware judge, who deemed it an “unfathomable sum” granted by a conflicted board with close personal and financial ties to its top executive.
The board conducted the shareholder vote to strengthen its appeal of the ruling, where the judge highlighted the board’s failure to fully inform shareholders before approving the payment plan in 2018.
“Even if the shareholders approve the old plan, it’s uncertain whether the Delaware court will recognize that vote,” noted Adam Badawi, a corporate governance law professor at the University of California Berkeley.
Musk may have to wait months or years for his payment plan to be reinstated as appeals progress through Delaware’s Supreme Court.