From: allin
Tesla Shareholder Vote and Elon Musk’s Pay Package
Tesla shareholders recently voted on two significant measures: the approval of Elon Musk’s $56 billion pay package and the relocation of Tesla’s incorporation from Delaware to Texas [00:23:16]. This marks a pivotal moment, especially after the pay package was previously voided by a Delaware judge, a topic discussed in episode 164 of the podcast back in February [00:23:37].
Shareholder Approval
Both proposals received overwhelming support from shareholders [00:23:51]. The pay package was approved by approximately 73% of shareholders, excluding shares held by Elon and Kimball Musk [00:24:47]. This supermajority vote was not a narrow victory [00:24:51]. Following the news, Tesla’s share price increased by 6%, reflecting the market’s positive reaction to securing Elon Musk’s continued involvement with the company [00:24:02] [00:27:30].
Notable entities that dissented from the vote included Norway’s sovereign wealth fund and CalPERS [00:23:56].
Delaware’s Judicial Activism and Corporate Domicile
The re-approval of the pay package by shareholders highlights a conflict with the Delaware judge’s original decision, which some perceive as a dangerous form of judicial activism that disregarded the will of the shareholders [00:25:04] [00:26:42]. The rationale for incorporating in Delaware has historically been the predictability of its corporate law [00:27:56] [00:39:38]. However, this ruling, especially after shareholders re-approved the package, casts doubt on that predictability [00:28:09].
The move of Tesla’s incorporation from Delaware to Texas is a significant development [00:24:43]. Elon Musk has been moving his companies to states like Nevada and Texas, suggesting a broader trend away from Delaware [00:26:11] [00:39:56].
Executive Compensation Models
The structure of Elon Musk’s pay package, where he received 10% of the company for increasing its stock value tenfold, is seen as a model that other boards should consider [00:29:41] [00:30:34]. It stands in contrast to typical executive compensation, which often involves multi-million dollar packages with little dependency on business performance [00:29:22]. Proponents argue that such performance-based compensation aligns the incentives of CEOs with those of shareholders [00:35:01].
Criticism of Dissenting Shareholders
Some organizations that initially voted yes on the pay package in 2018 but then voted no in the recent re-vote, such as CalPERS, are viewed critically [00:32:00] [00:32:46]. This change in vote, despite Elon Musk delivering on his commitments, is seen as a “double-cross” or “reneging” on an agreement [00:32:19] [00:32:57].
“If somebody is going to double cross you, they’ve shown you who they are. These are people who double cross them, they got the benefit and then they stabbed them in the back.” [00:32:19]
The Role of Trial Lawyers
The initial legal challenge to Elon Musk’s pay package is described as a “heist” orchestrated by trial lawyers [00:37:56]. These lawyers found a plaintiff with nine shares and pursued the case on a contingency fee basis, aiming for a multi-billion dollar payment [00:38:00] [00:38:10].
Impact on Delaware’s Status
There is a significant concern that if the Delaware judge awards billions in legal fees to these trial lawyers for a suit that shareholders effectively overturned, it could severely damage Delaware’s reputation as the premier state for corporate law [00:38:49] [00:39:53]. This situation raises questions about the future of corporate domicile and the predictability of legal frameworks for businesses [00:40:04].