TESLA SHAREHOLDERS HAVE voted in favor of a huge compensation package for CEO Elon Musk worth $56 billion.

Corporate secretary Brandon Ehrhart announced the result at Tesla’s annual meeting in Austin, Texas.

The package was originally approved by investors in 2018 but a court in Delaware struck it down in January 2024, prompting Tesla to launch a campaign to revive it.

Legal experts say that the vote does not automatically mean Musk will receive the payout but that the win could strengthen Tesla’s appeal against the ruling in Delaware.

Analysts expect the compensation package will likely ensure that Tesla continues to be led by Musk, who had hinted he might exit if he was left without an adequately large stake in Tesla.

Musk had about 20.5% of Tesla shares at the end of 2023. 

Speaking after the preliminary vote results were announced, Musk took the microphone and said: “I just want to start off by saying, hot damn, I love you guys.”

Litigation

Shareholders overwhelmingly backed the Musk compensation plan in 2018 but it was struck down by Delaware judge Kathaleen McCormick, who ruled that the plan was devised in a “deeply flawed” manner given Musk’s extensive ties to key Tesla directors who blessed the plan.

In April, Tesla revived the package, with chair Robyn Denholm imploring investors to “fix this issue” after the Delaware ruling, arguing ratification would “restore Tesla’s stockholder democracy” after the 2018 shareholder vote.

Musk backers, like billionaire investor Ron Baron, have offered unflinching support.

“Shareholders should ask themselves this question: is Tesla better off with or without Elon,” Baron said in a public letter. “At Baron Capital, our answer is clear, loud and unequivocal: Tesla is better with Elon. Tesla is Elon.”

However, other investors, such as California State Teachers’ Retirement System, balked at the package.

CalSTRS chief investment officer Chris Ailman told CNBC that he considers Musk “brilliant,” but that the current package is “ridiculous.”

Dorothy Lund, an expert in corporate governance at Columbia Law School in New York, said the effect of the latest shareholder vote was uncertain because the plan has still been blocked by the Delaware court.

But Lund said the vote likely strengthens Tesla’s appeal of McCormick’s decision because it shows that shareholders backed the plan even after the judge blocked it.

“It’s probably a way to set up an appeal,” Lund said.

Gregory Varallo, who represented shareholders who opposed the plan in the Delaware litigation, argued the vote had no bearing on the case.

“We believe that the ratification vote that Elon demanded and coerced is deeply flawed as a matter of law, legally ineffective and does not impact our case,” Varallo said in an email.

“We will respond to any arguments raised in due course.”

© AFP 2024