The News
Tesla CEO Elon Musk’s pay package worth billions of dollars has been approved by shareholders, a potential boon for the CEO in an ongoing legal fight that could see him take home one of the largest compensation deals in history.
In January, a Delaware judge ruled that Musk’s pay deal was invalid. The deal was negotiated in 2018 and said Musk could only be paid in stocks that he could not sell for five years. At close of markets on Wednesday, the pay package was worth $46.8 billion.
The court may be more persuaded to reinstate it now that shareholders have re-ratified the deal.
SIGNALS
Key investors still consider Musk ‘best salesman’
Elon Musk can take credit for Tesla’s exponential growth in the last decade, and he remains the company’s “best salesman,” argued Cathie Wood, the CEO of ARKInvest managing firm, of which Tesla holds multiple funds. Musk’s celebrity status was essentially free advertising for Tesla and helped build a global reputation that has benefited shareholders, with Tesla stock prices nearly 10 times higher now than five years ago despite substantial Chinese competition, she said. The salary deal also means that Musk will not be able to cash in on his options for at least five years, which means he would be tied to Tesla during a “crucial period” as it develops autonomous driving software.
Musk may have a corporate governance problem
At the heart of the salary debacle is a “corporate-governance problem,” columnist Stephen Wilmot wrote in The Wall Street Journal. In recent years, Musk has used Tesla to invest in things he cares about, like AI and robots, and he “runs Tesla like a family business,” retaining firm control over its business interests, Wilmot wrote. Corporate governance exists “to protect minority shareholders from being exploited by powerful insiders,” and the way that Musk has run Tesla suggests that he wants to “take money from Tesla’s minorities” to fund his other businesses, most notably xAI and X, formerly Twitter. Tesla’s board — which is supposed to look after its shareholders — is “under Musk’s thumb,” and shareholders have no one to look out for them except themselves.
Vote may be more symbolic than anything else
Legal scholars agree that while a “yes” vote could help Tesla’s appeal against the Delaware judge’s decision, it cannot directly reverse the decision and carries “more symbolic weight than legal power,” Bloomberg reported. Also part of Tesla’s plan is to move its state of jurisdiction to Texas, where the company is headquartered. But the compensation fiasco cannot be “wiped out with some kind of redo,” said one corporate governance law expert, and it will likely not convince the Delaware Supreme Court to rule in favor of Musk’s appeal. Texas courts could be more sympathetic with Musk, but he would need to restart his compensation legal battles all over again in Texas, the expert said.