....Steve Levine had already intimated about prospects of Musk leaving Tesla.
....now if shareholders don't make good the earlier agreement to pay him $47B, he would likely walk or pay more attention to his other interests.
....all sounding more troubles for Tesla ahead, on top of a business facing declining growth. Tesla tries again on Musk’s record pay package
Nearly three months ago, a Delaware court voided Elon Musk’s multibillion-dollar pay package that Tesla’s board — and most shareholders — had given him in 2018, contending that the process to decide it was “deeply flawed” and that the company didn’t properly disclose it to investors.
This morning, Tesla said that it would ask shareholders to vote again on that same pay package, now valued at about $47 billion, at its annual meeting on June 13. The company’s board is effectively asking shareholders, now armed with all of the information that was revealed about the negotiations in court, to make the court’s ruling moot.
The vote is likely to set off a bitter battle among investors and governance experts over whether shareholders should provide Musk with the richest pay package in U.S. corporate history. It comes as Tesla faces new challenges, especially slumping sales that have erased billions off its market value in recent months.
The background: In 2018, Tesla came up with a package that would give Musk the right to buy up to 304 million shares at a preset price of $23.34 — if he met a series of increasingly difficult-to-achieve financial milestones. If he didn’t meet them, he would get nothing. At the time, the company was worth $59 billion.
If Mr. Musk were somehow to increase the value of Tesla to $650 billion — a figure many experts would contend is laughably impossible and would make Tesla one of the five largest companies in the United States, based on current valuations — his stock award could be worth as much as $55 billion.
About 73 percent of non-Musk shareholders approved the plan in a 2018 vote.
Musk managed to surpass those high hurdles. But in January, a Delaware judge struck down the plan, agreeing with shareholders who had sued to block the payouts because, they said, it was created with the help of overly compliant Tesla directors.
What Tesla is doing now: The company will ask its shareholders to vote yes or no on the pay package again. Here’s the rationale, as laid out in a special board committee’s report included with its proxy filing:
We suggest simply subjecting the original 2018 package to a new shareholder vote, accompanied by expansive disclosure as to the process undertaken and the potential conflicts of interest that were considered at the time.
In other words, if the Delaware judge’s objection to the plan was that shareholders weren’t aware of all of the circumstances behind its creation in 2018, they would be if they voted this time. While Tesla is still appealing that decision, a new shareholder vote on the plan would clear up the matter.
The committee added that four of Tesla’s 10 biggest institutional shareholders, including the money management giant T. Rowe Price, asked the carmaker’s board for a new vote and indicated that they would vote in favor of it again.
Tesla is also making good on Musk’s threat to relocate the company out of Delaware, letting shareholders vote to move its incorporation to Texas. Tesla argues that the plan makes business sense, given the size of its operations in the Lone Star State and that shareholders would have more of a say there.
The Tesla board says the vote is about fairness. Here’s what Robyn Denholm, the carmaker’s chair, wrote in a letter to shareholders this morning:
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 shareholder value. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of stockholders who voted for it.
Tesla noted that since 2018, Musk hasn’t drawn any compensation, including salary or cash bonuses, despite achieving the board-set hurdles. (That said, he has sold $23 billion worth of stock in 2022 and pledged hundreds of millions of existing shares against personal loans.) Also, perhaps less well understood is that Musk has to keep the shares for five years after he receives them, again aligning his interests with shareholders.
Still, the vote opens up a number of complications. Musk has already demanded more voting control at Tesla. He could argue that if shareholders refuse to sign off on the compensation package, he will devote more of his time — and, perhaps more important, his work on promising technology like artificial intelligence — to his other businesses, like SpaceX or his xAI start-up.
Some Tesla shareholders have been unhappy with Musk’s increasing willingness to make provocative and unpredictable comments on the social media platform X, some of which have alienated customers. And the plaintiffs’ lawyers who brought the case to overturn Musk’s pay package could campaign to persuade investors to block the deal.
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If shareholders now have the opportunity to try to save tens of billions of dollars in compensation costs, it’s possible that some might vote against the deal, betting that Musk is already so invested in Tesla that he wouldn’t walk away. That said, Tesla’s board said that it had received unsolicited messages from thousands of shareholders in support of the 2018 pay plan since the judge’s ruling.
