Tesla is preparing to ask its shareholders to reapprove a $56 billion compensation plan for CEO Elon Musk that was previously agreed upon in 2018 but overturned by a US court earlier this year.
In a recent submission to federal regulators, Tesla Chair Robyn Denholm defended the original compensation agreement, emphasizing the company’s culture of embracing significant risks for potentially large rewards.
The massive $55.8 billion payout intended for Elon Musk in 2018 was nullified in January by a Delaware court after a shareholder lawsuit argued that Elon Musk had influenced the board’s decision, compromising its independence.
Denholm contested the court’s decision in the Securities and Exchange Commission filing, asserting that the ruling contradicts established corporate law principles.
“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,” she wrote.
“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.”
Denholm highlighted in the filing that Musk has not received any compensation for his contributions to Tesla over the last six years, contributions that have significantly enhanced growth and shareholder value. She described the court’s voiding of his package as unjust and not reflective of the shareholders’ original intentions.
Layoffs, deliveries down
Tesla has proposed relocating its state of incorporation from Delaware to Texas, which Denholm describes as Tesla’s true home, in another proposal set for the June 13 shareholder meeting.
Tesla is currently navigating through a challenging phase, with its stock value declining by 37 percent in 2024, while the S&P 500 has seen a six percent increase during the same timeframe.
This week, Tesla announced plans to cut over 10 percent of its workforce globally. This decision follows a reported decrease in auto deliveries for the first quarter, an issue attributed to increasing competition among electric vehicle manufacturers and a slowdown in market demand.
For Brian Dunn, a lecturer at Cornell University specializing in compensation studies, “no truly independent board would ever grant a package of this size to the CEO of a company that is struggling.”
Wedbush analyst Dan Ives chimed in: “The proxy and shareholder meetings combined with the current state of affairs at Tesla all sets up for more fireworks over the coming months.”
Dan Ives, an analyst from Wedbush, suggested that the upcoming shareholder meeting and current circumstances at Tesla might lead to significant developments in the coming months. He highlighted the need for Elon Musk to address rumors about halting plans for a budget-friendly electric vehicle, known as “Model 2,” stating that not introducing Model 2 within the next 18 months could severely impact Tesla’s growth narrative. Tesla’s shares fell by 1.06 percent at the close of the day.