Elon Musk attends the premiere of ”Lola” held at the Regency Bruin Theatre in Los Angeles, California, U.S., February 3, 2024.
Aude Guerrucci | Reuters
Tesla plans to ask shareholders to reinstate CEO Elon Musk’s $56 billion pay package from 2018 after a Delaware court voided the record-setting stock grant earlier this year and described it as “deeply flawed.”
The company announced the move in a preliminary proxy filing Wednesday, just days after the company told employees it would cut headcount by 10%.
Tesla said the court decision created a “fundamental problem for the company”. As a result, Tesla also plans to ask shareholders to let the company move its state of incorporation from Delaware to Texas, something Musk had threatened to do in the aftermath of the unfavorable court ruling.
The two proposals are likely to be fiercely controversial. Tesla has hired a proxy solicitor, Innisfree M&A, and plans to spend an undetermined amount, in the millions, to help secure the votes for the two proposals, according to the filing.
Tesla has not hired Innisfree since 2018, when it first asked shareholders to vote on Musk’s pay package. Companies often only advertise the cost of proxy solicitations when major proposals or proxy fights are expected.
Musk’s pay package was mooted after a shareholder won a lawsuit against the company earlier this year. Delaware Chancery Court Chancellor Kathaleen McCormick found that Musk, rather than Tesla’s board, controlled the company and that the board’s compensation committee, rather than negotiating with Musk over the terms of the deal, “worked alongside him, almost as an advisory body.”
The Tornetta decision prompted Musk to say, “Never incorporate your company in the state of Delaware.”
Tesla, in its Wednesday filing, cast doubt on the decision from McCormick, who has been across some of Musk’s other legal dealings. “The Company and the Board believe that the decision in Tornetta ignored material evidence presented at trial and that the Delaware Court made errors of fact and incorrect conclusions of law,” Tesla said in the proxy filing.
The company also noted that “dozens of institutional stockholders” have told Tesla that they disagree with the Tornetta decision.
Delaware has long been a preferred home for corporations — more than 60% of the Fortune 500 are incorporated there — because the state has a robust legal framework and court system dedicated to resolving corporate issues, like executive pay, but also broader contract negotiations.
Tesla’s new proposal cautions shareholders that the Delaware court found their initial 2018 disclosures to be deficient, and urged them to read the full text of the decision.
In January, the same day the pay package was rejected, Musk asked his X followers if Tesla should re-incorporate in Texas. Months later, Tesla’s board is now asking shareholders to approve their answer to that question.
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