Tom Hulse
WILMINGTON, Delaware (Reuters) – Tesla has convinced an army of small investors and big funds to ratify Elon Musk’s $56 billion pay package. Now comes the tougher part: convincing an already skeptical Delaware judge to admit it.
The company said Thursday that shareholders approved both Musk’s pay package and the board-sponsored move of Tesla’s legal home from Delaware to Texas.
Musk is the driving force behind Tesla and is responsible for many of its achievements, which has led to strong support for the pay package, especially among small shareholders. However, sales and the share price have fallen recently, fueling concerns that led to a unanimous “no” vote.
Before Tesla can transfer shares to Musk, it will likely be months of legal wrangling over the pay ratification vote, Musk’s efforts to rally shareholders behind his compensation and an appeal of the original decision, four months after a Delaware judge threw out the pay package . .
The final legal outcome in Musk’s favor is not clear and will not be immediate.
Judge Kathleen McCormick of the Delaware Chancery Court overturned the pay package in January after finding that Musk improperly controlled the board’s 2018 bargaining process. She also ruled that Tesla did not fully inform investors before they voted for it.
“It’s not over yet,” said Brian Quinn, a professor at Boston College Law School. He said McCormick would require Tesla to prove the vote was unconstrained and the timing and strategy were not under Musk’s control. “So when they show up (in Delaware court) and say everything is fine now, they’re going to have to show up with receipts.”
According to Tesla, Thursday’s shareholder vote essentially went back in time and corrected the 2018 shareholder vote, revealing huge amounts of information to investors, including McCormick’s 200-page ruling.
Tesla argued that this also resolved the issue of Musk’s dominance in the pay package negotiations. A special committee was created, ultimately including only Kathleen Wilson-Thompson, an independent board member, who reviewed the 2018 payout agreement and determined it was in the best interests of shareholders.
But Tesla also acknowledged in securities filings that favorable ratification may not resolve the wage dispute. Ratification is seen primarily as a tool for solving problems such as technical failures in corporate documents.
Many large shareholders and some smaller shareholders voted against the remuneration package, frustrated by the size of the rewards, the slowdown of Tesla’s business and Musk’s growing list of distractions, including businesses in rockets, artificial intelligence, social media, neuroscience and tunneling.
At least one shareholder has already filed a legal challenge to the vote.
Tesla investor Donald Ball’s (NYSE) lawsuit in Delaware Chancery Court accused Musk of using “strong, coercive tactics” to get his pay package approved. He cited Musk’s posts on his social media platform X, which said he was uncomfortable making Tesla a leader in artificial intelligence unless he had a 25% stake in the company, nearly double his current holdings.
But Tesla and Musk will likely argue that Musk is allowed to express his desire to leave the company.
Columbia Law School professor Zohar Goshen said he believed the Delaware court’s decision should be overturned after the “yes” vote, but acknowledged the situation was too unusual to call.
“It is difficult to assess what decision the court will make because there is too much noise around this decision. But my personal opinion is that Tesla should succeed,” Goshen said.