It could be the highest-stakes popularity contest in history.
Friends and foes of tech billionaire Elon Musk are in the middle of a two-month battle over whether to restore a record $56 billion package for the U.S. economy. Tesla CEO, months after a state judge in Delaware his compensation was canceled as wrongly awarded.
The battle is taking the form of a shareholder vote: Nearly all Tesla stock owners, including Wall Street firms and thousands of individual investors, are casting their votes for or against the pay package, usually voting online ahead of the annual meeting from the automaker on June 13 in Austin, Texas.
The question for shareholders: whether they should agree to a compensation package they originally approved in 2018, but which a Delaware judge found illegal under that state's corporate laws.
The vote is unusual not just because of the fortune Musk stands to win – it is 250 times larger than the median among Musk's peers. according to the judge who declared it invalid in January – but also because of the public and private bickering on both sides of the paid vote.
Tesla bought ads And launched a website to convince investors to vote for the package – tactics that experts say are unprecedented in a debate over corporate executive pay. Some Musk supporters are also making online videos and reaching out to potential swing voters one-on-one, as if it were an election for public office.
But opponents of Musk's compensation deal are also organizing. Several investors released a joint letter this month urging fellow shareholders to fine-tune the package as exaggerated.
The vote is a test of continued investor confidence in Musk, who has become an increasingly polarizing public figure, especially thanks to the election his extreme viewsalso in the field of immigration and transgender issues. He is one of the richest people in the world and has a base of loyal fans.
James Park, a law professor at the University of California, Los Angeles, said investors are likely considering a range of factors when deciding whether to reward Musk for his performance as CEO.
“It will partly be a popularity contest, but I think shareholders will also make a hard, rational assessment of whether it is worth paying this amount to ensure he doesn't go elsewhere,” he said. he.
Musk has anything but threatened to abandon Tesla if he does not receive additional shares in the company. In January, he posted on As of January he owned about 13% of the company, according to CNBC.
Musk's attention is already divided. He is also the CEO of rocket company SpaceX, the owner of X and co-founder of the brain science startup Neuralink.
The amount of money at stake is enormous, even by Musk's standards. According to the American newspaper, he has a net worth of $191 billion Bloomberg Billionaires Index, so the package equals well over a quarter of its power. Musk was never paid the money: By the time the package was annulled, he had stock options worth 304 million Tesla shares but had not yet exercised the options to acquire them, according to the Delaware ruling.
Tesla shareholders approved the pay package in 2018, with compensation tied to Tesla's performance, including market value. Even then, there was a difference of opinion, with 73% of votes in favor, compared to a typical 95% approval level for corporate CEO pay. Reuters reported this.
To some of Musk's critics, the vote on whether to reinstate the $56 billion package is a brazen attempt to sidestep Delaware Chancery Court Judge Kathaleen McCormick's ruling. She ruled in favor of a handful of Tesla shareholders who claimed the pay was unfair in part because the board that approved it was too too close to Musk to be completely independent and the shareholders were not aware of all the facts.
“In terms of this transaction, Musk was in control of Tesla,” McCormick said wrote in her ruling.
The situation is far from a textbook example of how to run a large company, said Nadya Malenko, a professor of finance at Boston College's management school.
“These are not good examples of governance,” she said, pointing to the conflicts and lack of transparency exposed in the Delaware lawsuit.
After the Delaware ruling, attorneys for the plaintiff shareholders the judge asked to award a record $6 billion in attorneys' fees for winning the case. The judge did not rule on that request, and Tesla's board said in a proxy statement that compensation may not be justified if shareholders reapprove the compensation package.
Musk and the board say they plan to appeal McCormick's ruling, and they hope a second vote will essentially overturn McCormick's concerns about the pay package. The board is also separately asking shareholders to approve moving Tesla's incorporation status to Texas.
But it is far from clear that a second shareholder vote will be approved by the court, said Ann Lipton, a law professor at Tulane University. She said that even if a majority of shareholders vote yes, there will almost certainly be further litigation in Delaware — meaning the case will move forward.
“This just hasn't been done before,” Lipton said, calling the whole thing unprecedented. “This idea, after a trial, after a finding of a breach of fiduciary duty, to vote again — I'm not aware of anything like this happening before.”
From a legal perspective, Lipton says, boards are supposed to maximize shareholder value, and it's unclear how the compensation package benefits shareholders in a tangible way. The $56 billion would be backpay over a period since 2018, during which Musk has already done his work, and if it were construed as a bonus or a gift, a court could still find it unreasonable, she said.
“Gifts are nice. Gifts are fine. But a gift of company property with no associated benefit falls into the legal category of 'waste,'” she says. wrote in a blog post.
Some of Musk's supporters say that despite the Delaware ruling, they see the 2018 pay package as a promise that Tesla must keep, as long as Musk keeps his end of the bargain by meeting the package's performance targets.
“A deal is a deal,” several investors posted on Musk's social media app X, alongside screenshots of confirmation that they voted and the hashtag #VotedTesla24.
The performance requirements set in 2018 were based on three factors: Tesla's market capitalization, revenue and profitability. Musk has met some of those by growing its market capitalization – a measure of the company's value – from $59.1 billion in 2018 to more than 570 billion dollars this year. And he still has time to achieve goals he has not achieved, including in terms of earnings, because the pay package had a ten-year term.
In the 440-page proxy statement In explaining the vote, a committee of Tesla's board noted the “new circumstances.” It recommended approval to “avoid further uncertainty about Mr. Musk's compensation and motivation.” The committee wrote that it could not predict the court's ultimate outcome if some shareholders challenged the vote.
The shareholder voting process is so complicated that some Musk fans are creating how-to videos and posting them on X, Musk's social media app. Some shareholders can vote online themselves, while others must do so through a broker. One Musk fan, who goes by @TeslaBoomerMama on
It's the kind of public-private bickering that sometimes occurs when there are contentious elections for seats on corporate boards of directors — as was the case this year for Disney's board of directors — but not when it comes to compensation.
So far, most institutional investors do not say how they vote. One top 10 shareholder, T. Rowe Price, has expressed some support but has only announced a vote in favor.
“We don't think it's fair to set up a new set of options subject to a new set of performance hurdles. The demands of the 2018 package were extremely ambitious – and they were delivered,” the company wrote in a letter to Tesla's board. according to the proxy statement.
But T. Rowe Price told Reuters in April that it was premature to say how the company's funds would vote. The company did not immediately respond to a request for comment Friday.
New York City Comptroller Brad Lander was among the institutional investors signing a joint letter was opposed, along with the union-owned Amalgamated Bank.
“Shareholders should not pretend that this reward has any incentive effect – it does not. What it does bring is an excess problem, which has been glaringly obvious from the start,” they wrote.
Shareholder votes are not public unless an investor shares how they voted. Some people started sharing screenshots of their votes in April, shortly after Tesla's board announced the vote. The deadline to vote online is June 12. Some people can also vote in person at the annual shareholders meeting on June 13. The results are expected on June 13. during the meeting or shortly afterwards.
