Getty Images | Patrick Pleul
Tesla is asking shareholders to approve a move to Texas and to re-approve a $55.8 billion pay package for CEO Elon Musk that was recently voided by a Delaware judge.
Musk’s 2018 pay package was voided in a ruling by Delaware Court of Chancery Judge Kathaleen McCormick, who found that the deal was unfair to shareholders. After the ruling, Musk said he would seek a shareholder vote on transferring Tesla’s state of incorporation from Delaware to Texas.
The proposed move to Texas and Musk’s pay package will be up for votes at Tesla’s 2024 annual meeting on June 13, Tesla Board Chairperson Robyn Denholm wrote in a letter to shareholders that was included in a regulatory filing today.
“Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value,” the letter said. “That strikes us—and the many stockholders from whom we already have heard—as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.”
On the proposed move to Texas, the letter to shareholders said that “Texas is already our business home, and we are committed to it.” Moving the state of incorporation is really about operating under a state’s laws and court system, though. Incorporating in Texas “will restore Tesla’s stockholder democracy,” Denholm wrote.
Judge: Board members “were beholden to Musk”
Musk is a member of Tesla’s board. Although Musk and his brother Kimbal recused themselves from the 2018 pay-plan vote, McCormick’s ruling said that “five of the six directors who voted on the Grant were beholden to Musk or had compromising conflicts.” McCormick determined that the proxy statement given to investors for the 2018 vote “inaccurately described key directors as independent and misleadingly omitted details about the process.”
McCormick also wrote that Denholm had a “lackadaisical approach to her oversight obligations” and that she “derived the vast majority of her wealth from her compensation as a Tesla director.”
The ruling in favor of lead plaintiff and Tesla shareholder Richard Tornetta rescinded Musk’s pay package in order to “restore the parties to the position they occupied before the challenged transaction.”
Tornetta’s lawyer, Greg Varallo, declined to provide any detailed comment on Tesla’s plan for a new shareholder vote. “We are studying the Tesla proxy and will decide on any response in due course,” Varallo told Ars today.
In the new letter to shareholders, Denholm wrote that Tesla’s performance since 2018 proves that the pay package was deserved. Although Tesla’s stock price has fallen about 37 percent this year, it is up more than 630 percent since the March 2018 shareholder vote.
“We do not agree with what the Delaware Court decided, and we do not think that what the Delaware Court said is how corporate law should or does work,” Denholm wrote. “So we are coming to you now so you can help fix this issue—which is a matter of fundamental fairness and respect to our CEO. You have the chance to reinstate your vote and make it count. We are asking you to make your voice heard—once again—by voting to approve ratification of Elon’s 2018 compensation plan.”