It was the most radical skin-in-the-game compensation plan ever devised. This is how Andrew described the compensation agreement at the time:
If Mr. Musk somehow managed to increase Tesla’s value to $650 billion – a figure that many experts consider laughably impossible and would make Tesla one of the five largest companies in the United States according to current valuations – its stock allocation could be worth up to $55 billion.
About 73 percent of non-Musk shareholders approved the plan in a 2018 vote.
Musk has managed to overcome these high hurdles. But in January, a Delaware judge rejected the plan, agreeing with shareholders who had sued to block the payouts because they said they were created with the help of overly compliant Tesla directors.
What Tesla is doing now: The company will again ask its shareholders to vote yes or no on the compensation package. Here is the rationale as set forth in the report of a special committee of the board that accompanies the proxy statement:
We propose simply subjecting the original 2018 package to a new shareholder vote, accompanied by a detailed disclosure of the process undertaken and the potential conflicts of interest that were considered at that time.
In other words, if the Delaware judge’s objection to the plan was that shareholders were not aware of all the circumstances behind its creation in 2018, they would be if they voted this time. While Tesla is still appealing that decision, another shareholder vote on the plan would clarify the matter.
The committee added that four of Tesla’s 10 largest institutional shareholders, including asset management giant T. Rowe Price, had asked the automaker’s board for a new vote and indicated they would vote in favor again.
Tesla is also making good on Musk’s threat to move the company out of Delaware. He had shareholders vote to move the incorporation to Texas. Tesla argues that the plan makes economic sense given the size of its operations in the Lone Star State and that shareholders there would have more of a say.
The Tesla board says the vote is about fairness. This is what Robyn Denholm, CEO of the automaker, wrote in a letter to shareholders on Wednesday:
Since the Delaware court has reconsidered your decision, Elon has not been paid for any of his work for Tesla over the past six years, which helped generate significant growth and shareholder value. To us – and to the many shareholders we have already heard from – this seems fundamentally unfair and inconsistent with the will of the shareholders who voted for it.
Tesla noted that Musk has not received any compensation, including salary or cash bonuses, since 2018 despite meeting hurdles set by the board. (However, he sold $23 billion worth of shares in 2022 and pledged hundreds of millions of existing shares against private loans.) What is also perhaps less clear is that Musk will again have to hold on to the shares for five years after receiving his interests with shareholders to reconcile.
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2024-04-17 10:52:30
www.nytimes.com
