May 30, 2024

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Tesla is seeking to revive Musk's $47 billion payout deal through a new shareholder vote

Tesla is seeking to revive Musk's $47 billion payout deal through a new shareholder vote

Facing criticism that it is overly indebted to Elon Musk, Tesla's board of directors said on Wednesday that it would give him everything he wanted, including the largest pay package in the company's history.

If setbacks in court and in the auto market have prompted soul-searching among Tesla's board, there was no indication of it in the latest announcement. If anything, the board has doubled down on its support for Mr. Musk, the Tesla CEO, risking fire from activist investors and more lawsuits.

The board's decision to ask shareholders to approve Mr. Musk's roughly $47 billion compensation plan came less than three months after a judge in Delaware struck down the same 10-year pay package. The judge said it was exaggerated and that the company had failed to properly disclose details about it to shareholders who approved it in 2018.

Tesla will now provide shareholders with more information about how the plan was developed and ask them to approve it again. This vote will be taken as investors grow increasingly concerned about the electric car company because its sales are declining, and its shares have fallen by more than a third this year. Additionally, Mr. Musk has not offered much of a plan to restore the company's momentum.

Greg Varallo, an attorney who represented shareholders in the Delaware case, declined to comment Wednesday on what steps his team might take. But the board's action is likely to lead to more lawsuits against the company, which is under legal pressure from regulators, customers and people who say they were victims of errors in Tesla's driver-assistance system.

Two days before moving to restore Mr. Musk's status as one of the world's richest people, Tesla told employees it would lay off 10% of its workforce, or about 14,000 people.

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“It certainly doesn't look good,” said Jason Schlozer, an assistant professor at Georgetown University's McDonough School of Business who studies corporate governance.

There is no indication that Tesla's board is trying to exert tighter control over Mr. Musk, whose endorsement of right-wing conspiracy theories has alienated many potential customers. On the contrary, in documents After his presentation on Wednesday at the June shareholder meeting, the board signaled that it stood firmly behind Mr. Musk.

The board has asked shareholders to approve moving Tesla's headquarters from Delaware to Texas, a change Mr. Musk called for on the day a Delaware court vacated his pay package in January. The board asked shareholders to reappoint two directors with close ties to Mr. Musk: media director James Murdoch, who spent a vacation with Mr. Musk, and his brother, Kimbal Musk.

The company's moves were a rebuke to the judge who struck down Mr. Musk's 2018 salary plan, counsel Kathleen St. J. McCormick of the Delaware Court of Chancery. In her ruling, the judge rebuked the board for lax oversight of Mr. Musk.

“Musk controlled the board and the shareholders,” Lynn Vincent, an assistant professor at Syracuse University’s Whitman School of Management, said of the court’s decision. “The people who were advocating for this deal were not active protectors of shareholder interests. It was an integral part of his personal life and his financial life.

By asking shareholders to return Mr. Musk's compensation, Tesla's board is trying to make Chancellor McCormick's decision moot.

“We disagree with what the Delaware court decided, and we do not believe that what the Delaware court said is how corporate law should or works,” Tesla Chairman Robin Denholm said in a letter to shareholders on Wednesday. The company said separately that it plans to appeal the judge's decision.

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Ms Denholm said it would be “fundamentally unfair” to deny Mr Musk the compensation he had been promised. She pointed out that Tesla has not paid Mr. Musk anything over the past six years, in addition to the compensation plan that was cancelled.

But Mr. Musk made billions from his Tesla shares. Brian Dunn, a former compensation consultant and visiting lecturer at Cornell University's School of Industrial and Labor Relations, said pay plans were supposed to provide incentives for executives for future performance, not reward them for past work.

“Nothing in the plan requires him to focus on Tesla,” Mr. Dunn said, pointing to Mr. Musk’s ownership of X, the social media platform, and ventures like SpaceX. “This is evidence that the board remains very satisfied,” he added.

Some investors found the fairness argument contradictory given Tesla's recent problems.

“Asking people to agree to one of the largest pay packages ever, while the company is failing to meet current targets and laying off 10% of staff, is terrible timing,” said Antoine Arjouge, CEO of Tulipshere, an activist investor group. .

Tulipshare has proposed a shareholder vote on whether executive compensation at Tesla should be conditional on meeting standards related to carbon emissions and workers' rights. Tesla's board of directors opposes this proposal.

Ms. Denholm framed the decision to leave Delaware as a logical step for a company with a growing presence in Texas, rather than an attempt to escape the state's justice system. “We have a significant number of manufacturing, operations and engineering employees in Texas, and our executives are based there,” she told shareholders.

She insisted that the council be independent. The board member who evaluated Mr. Musk's compensation plan was Kathleen Wilson Thompson, a former human resources executive at Kellogg and Walgreens who did not appear to have any personal relationships with him, Ms. Denholm said.

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Tesla's board members are listening to shareholders, the board said in a proxy statement filed on Wednesday. “The Board of Directors maintains an active dialogue throughout the year with our largest shareholders to ensure that Tesla’s Board of Directors and management understand and consider the issues that are most important to our shareholders,” the statement read.

Ms. Denholm and the board of directors did not respond to statements made by Mr. Musk last January in which he said that if he was not granted control of more than 25 percent of the company's shares, he would pursue certain projects outside of Tesla. He now owns about 13 percent of Tesla shares, down from 22 percent after he sold billions of dollars in shares to fund the acquisition of Twitter, now known as X.

Ms. Vincent of Syracuse University said Tesla provided little information about how decisions were made about layoffs and compensation. “I don’t think any of this was transparent,” she said.

Tesla's board of directors did not address concerns that the company was losing its grip on the electric vehicle market. Ms. Denholm offered a rosy outlook for Tesla's future.

“Tesla is an agile organization with an unparalleled pace of innovation resulting in products and services that exceed all expectations driven by visionary leadership and, most importantly, the best and most dedicated employees in the world,” she said in her letter to shareholders. .

She added that the decision to fire 10% of these employees was necessary to reduce costs, increase productivity and “prepare us for the next phase of growth.”