Elon Musk May Retreat From Tesla If Not Granted $56Bn Pay Package

Tesla’s chair has made an extraordinary last minute appeal to shareholders, ahead of the vote about Elon Musk’s $56 billion pay package.

In a letter filed with the US SEC, chair Robyn Denholm warned that Elon Musk could focus his attention elsewhere from Tesla if not granted the pay package. Denholm also claimed this approval was “obviously not about the money.”

Tesla shareholders are to vote on 13 June on Elon Musk’s compensation package, that is estimated to be worth as much as $56 billion. The vote to reinstate Musk’s huge financial compensation package comes after the EV car giant recently opted to axe thousands of staff.

Pay package

Tesla shareholders had approved the deal in 2018, but in January a Delaware chancery judge struck it down citing Musk’s “extensive ties” with board members, as well as other concerns with the approval process.

Delaware Judge Kathaleen McCormick had annulled Elon Musk’s $56 billion pay package, after ruling that Tesla’s board of directors had failed to prove “that the compensation plan was fair” or show much evidence that they had even negotiated with him.

That ruling came after a lawsuit filed by Richard Tornetta, a Tesla shareholder who argued that directors had breached their fiduciary duties by awarding Elon Musk a performance-based equity-compensation plan.”

The pay package that Tesla had granted Musk was the largest compensation plan in public corporate history, the judge noted.

Musk hit out at the judge’s ruling, saying, “Never incorporate your company in the state of Delaware.”

He then tweeted a poll that asked the question: “Should Tesla change its state of incorporation to Texas, home of its physical headquarters?”

The poll saw 87.1 percent of respondents vote for Tesla to change its state of incorporation to Texas.

Elon Musk began the process of reincorporating both Tesla and SpaceX in Texas.

Shareholder vote

Tesla in April re-proposed the 2018 pay package, which consists of a 10-year grant of stock options, and has repeatedly urged shareholders to accept it.

Tesla’s market value has grown from around $50bn in 2018 to about $562bn today, and supporters of the deal say Musk deserves to be rewarded for reaching performance targets

But support for Musk has waned amid criticism of his handling of the Twitter acquisition, his support for conspiracy theories, and his lack of support for content moderation online.

Criticism within Tesla shareholders has also focused on how much time Musk can devote to the EV maker, alongside SpaceX, X (formerly Twiter), Neuralink, AIx etc.

Last week a proxy advisory firm advised Tesla investors to vote against re-approval of Musk’s record-breaking pay package, citing the package’s “excessive size” and Musk’s “slate of extraordinarily time-consuming projects”.

‘Not about money’

But in the SEC, Tesla chair sought to appeal to shareholders to approve the compensation package, warning them that Musk could step back if the package is not approved.

“Over the past several weeks, we have seen a lot of speculation and discussion about the important matters we are bringing to you at next week’s Annual Stockholders’ Meeting,” wrote Robyn Denholm. “We are entering the final days before the polls close on one of the most important votes in the history of our extraordinary company. As Board Chair, I want you to hear directly from me on why it is so important that you ratify Elon’s 2018 Performance Award and vote to move Tesla’s corporate domicile to Texas.”

Denholm claimed these votes are “about fairness, respect and the future of Tesla.”

She argued that Tesla has to “honour the collective commitment we made to Elon – a commitment that was, and fundamentally still is, about retaining Elon’s attention and motivating him to focus on achieving astonishing growth for our company.”

She pointed out that the 2018 pay package had been “overwhelmingly approved by approximately 73 percent of disinterested stockholders — it had one simple purpose: to keep Elon focused on Tesla and motivated to achieve the Company’s incomparable ambitions.”

She wrote that in order for Musk to realise any benefit of the award, he had to hit milestones that directly and substantially benefited the company and stockholders.

“Upholding our end of the bargain, then, by ratifying the decision we all made in 2018, is more important than ever,” she wrote. “If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal.

“This is obviously not about the money,” Denholm wrote. “We all know Elon is one of the wealthiest people on the planet, and he would remain so even if Tesla were to renege on the commitment we made in 2018. Elon is not a typical executive, and Tesla is not a typical company.”

“So, the typical way in which companies compensate key executives is not going to drive results for Tesla,” she wrote. “Motivating someone like Elon requires something different. This is one of the key reasons the Award also requires Elon to hold any shares he receives upon exercise of stock options for five years after he exercises the options – which can only serve to incentivise him to continue delivering value to Tesla and our stockholders.”

“What we recognised in 2018 and continue to recognise today is that one thing Elon most certainly does not have is unlimited time,” she wrote. “Nor does he face any shortage of ideas and other places he can make an incredible difference in the world. We want those ideas, that energy and that time to be at Tesla, for the benefit of you, our owners. But that requires reciprocal respect.”

Denholm concluded by urging Tesla shareholders to also approve “moving our company’s legal home to Texas, marrying our legal home to our operational home.”