Tesla CEO Elon Musk claimed Wednesday shareholders approved to have his stricken $50 billion pay package reinstated, a development that, if true, could open a new and uncertain legal chapter for the billionaire that could shape his personal fortune, Tesla’s future, and the future of other companies he is involved with.
Elon Musk said Tesla shareholders supported reinstating his large pay packet.
The Tesla revote is largely symbolic and a vote in Musk’s favor on Thursday does nothing to settle the legal dispute over his pay package, which Delaware Court of Chancery Judge Kathaleen McCormick described as “unfathomable” when striking it down in January.
If it wins the vote, Tesla is expected to use shareholder support as a tool to overturn or challenge McCormick’s ruling on grounds that shareholders have now “ratified,” or reratified, the proposal, effectively nullifying any issues surrounding the original package’s approval years ago.
Tesla’s strategy is unusual and, by its own admission, untested and legal experts widely agree the situation throws Musk, Tesla and the Delaware court system into uncharted legal territory.
Foremost, it is unclear whether McCormick or an appeals court in Delaware would even accept the vote, which is non-binding, and the new information does not have the power to reverse a legal matter that has already been settled in court.
Ratification also does little to address some of the reasoning behind McCormick’s ruling — the judge said the Tesla board was too close to Musk and failed in its duty to protect shareholders’ interests — and it raises other issues like shareholders possibly being swayed by implicit threats to Tesla’s future should “no” prevail.
Should Tesla’s legal gambit succeed, there could be numerous legal battles ahead, as the shareholders behind the original lawsuit will likely appeal the decision to Delaware’s Supreme Court and some shareholders could challenge Musk’s newly approved pay package, perhaps arguing the revote or negotiation process was unfair or on grounds the board has again failed its fiduciary duty to shareholders.
While Musk says the vote has gone in his favor, the official results aren’t due until Tesla’s annual meeting on Thursday. It’s possible Musk has declared victory prematurely and that shareholders have actually rejected the package, despite heavy campaigning to woo votes from Musk himself and Tesla’s board. If shareholders have voted no, the matter is unlikely to be settled soon. There are unresolved issues in McCormick’s original case, namely how legal fees will be settled, that have delayed a final ruling on Musk’s pay packet. Tesla must wait until this has happened and a final ruling has been issued until it can appeal to Delaware’s Supreme Court. Loss could also mean Tesla will need to renegotiate its compensation deal with Musk. The billionaire has indicated he may focus more on his other companies like xAI and SpaceX in the event of a no vote or even leave Tesla entirely. Tesla chair Robyn Denholm has expressed similar sentiments regarding Musk’s future. Analysts have suggested a no vote could spark a selloff of Tesla stock over fears Musk would leave. There are also other legal avenues Musk or Tesla could pursue. This includes another untested legal strategy of Musk suing Tesla directly for payment, as he had a contract with them, or even use courts in Texas, where the company is hoping to move to, to attack the Delaware judiciary.
“Tesla's position is that if shareholders vote yes, the original problems with the 2018 grant– which it doesn't concede exist, of course–are cured,” Tulane University law professor Ann Lipton told Forbes. However, the investor plaintiff views the new vote as essentially “meaningless,” Lipton said. “Legally, this is very unsettled–nothing like this has been done before,” Lipton added.
Musk is the world’s richest person with an estimated net worth of $209.8 billion. He is involved in running a cohort of companies including tunneling firm Boring Co., neuroscience venture Neuralink, rocket company SpaceX, social media platform X and artificial intelligence startup xAI, many of which he helped found. A significant portion of his wealth is tied to his compensation package with Tesla.
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