Tesla (NASDAQ:TSLA) is set to bring a vote before shareholders on June 13 to reinstate a $56 billion compensation package for CEO Elon Musk, which was rejected earlier this year by a Delaware judge, along with a proposal to relocate the electric car maker’s corporate headquarters from Delaware to Texas.
In a filing with federal regulators on Wednesday, Tesla announced its intentions to seek shareholder approval for both initiatives.
In January, Chancellor Kathaleen St. Jude McCormick ruled against Musk’s entitlement to a groundbreaking compensation package awarded by Tesla’s board of directors, potentially valued at about $55.8 billion over a decade starting in 2018.
The rejection came after a lawsuit by a Tesla shareholder contended that the pay package should be voided because it was influenced by Musk and was the result of questionable negotiations with directors lacking independence from him.
Following the judge’s ruling, Musk expressed his intention to relocate Tesla’s corporate listing to Texas, where he has already moved the company’s headquarters. He promptly executed a similar move for Neuralink, his privately held brain implant firm, shifting its corporate domicile from Delaware to Nevada.
In a letter to shareholders this week, Chairperson Robyn Denholm praised Musk for driving growth at the automaker, noting that Tesla had met all stock value and operational targets outlined in a 2018 CEO pay package previously approved by shareholders.
“Due to the Delaware Court’s ruling, Elon has not received compensation for his contributions to Tesla over the past six years, which have been instrumental in generating significant growth and shareholder value,” Denholm wrote. “This seems unjust to us — and to the many shareholders who supported it.”
Tesla achieved record deliveries of over 1.8 million electric vehicles globally in 2023, according to regulatory filings. However, the value of its shares has plummeted this year amid weakening electric vehicle sales.
With future growth uncertain and competition intensifying globally, garnering shareholder support for a hefty compensation package could be challenging. Shareholders will also be asked to provide a non-binding advisory vote on future executive compensation.
Tesla’s shares have tumbled more than one-third in value this year, despite substantial price reductions aimed at stimulating demand. The company reported delivering 386,810 vehicles from January through March, nearly 9% fewer than the same period last year.
At the time of the Delaware court ruling, Musk’s package was estimated to be worth over $55.8 billion. However, Tesla’s stock decline this year may have cost the CEO over $10 billion. The filing indicated that Musk’s 2018 compensation was valued at $44.9 billion as of April 12.
In response to shrinking profit margins, Tesla recently announced layoffs affecting approximately 10% of its workforce, around 14,000 employees.
Tesla’s board emphasized that the decision to seek shareholder approval for Musk’s 2018 pay package was made after receiving a report from a special committee comprising one board member, Kathleen Wilson-Thompson.
The board stated that in the event of significant opposition to future executive pay packages, they would consider shareholder concerns, with the compensation committee evaluating any necessary actions in response.
Shares of Tesla Inc., which experienced an additional 8% decline this week, saw a slight decrease in trading just after Wednesday’s opening bell.
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