Tesla is asking shareholders to restore Elon Musk's $56 billion pay package that was invalidated by a Delaware judge

DETROIT (AP) — Tesla is asking shareholders to take back a $56 billion pay package CEO Elon Musk Which was rejected before Delaware judge this yearAnd moving the company's headquarters to Texas.

The changes, which will be voted on by shareholders at the annual meeting on June 13, may be more stringent than when they were first approved in 2018. The Austin, Texas-based electric car maker is struggling with declining global sales and slowing demand. On electric vehicles, the aging model lineup and a stock price that's down 37% so far this year.

In January, counsel Kathleen St. Jude McCormick ruled that Musk was not entitled to historic stock compensation that was scheduled to vest over 10 years.

It ruled on a lawsuit brought by a shareholder and invalidated the pay package, saying Musk essentially controls the board, making the compensation enactment process unfair to stakeholders. “Musk had extensive relationships with the people charged with negotiating on behalf of Tesla,” she wrote in her ruling.

But in a letter to shareholders issued in a regulatory filing on Wednesday, Chairman Robin Denholm said Musk had achieved the growth he was looking for in the automaker, with… Tesla Meet all equity value and operational targets in the 2018 package that were approved by shareholders. Shares are up 571% since the pay package began.

“Because the Delaware court disagreed, Elon was not compensated for any of his work for Tesla over the past six years, which helped create significant growth and shareholder value,” Denholm wrote. “This strikes us — and many of the shareholders we have already heard from — as fundamentally unfair, and inconsistent with the will of the shareholders who voted for it.”

Tesla said in the lawsuit that it intends to appeal the decision. If shareholders approve the new package, the disclosure and procedure deficiencies and violations of the board's fiduciary duty highlighted by McCormick must be fixed, the filing said.

But Tesla said shareholders may still challenge the certification vote. Even if it passes, Tesla said it may not fully resolve the issue and a Delaware court may find the certification itself unfair to shareholders.

If shareholders don't ratify the plan, Tesla said it may need to negotiate an alternative with Musk. This would take significant time and expense “in light of the criticisms” detailed in the Delaware lawsuit.

Tesla is going the certification route, rather than trying to negotiate a new package with Musk, which the company has said would likely need to be the same size as the previous one in order to retain him.

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Because it is trying to certify rather than a new plan, Tesla said it “has not materially re-evaluated the amount or duration” of the package nor has it hired another compensation consultant to influence it.

In the 2018 plan, Musk will not receive a salary or cash bonuses. Instead, he had to receive stock options only, and only if the company met certain thresholds. It will need to increase its total market value by certain amounts, while meeting revenue targets, pre-tax profits, and other elements.

Many CEOs at large companies need to meet goals to get much of their potential compensation. This is to encourage decisions that benefit the company and shareholders in general. But Musk was unusual in making his entire salary depend on such actions.

When the company's board developed the compensation plan, it said it believed it would be difficult to overcome the hurdles. Some strangers agreed.

But the shareholder plaintiff in the Delaware lawsuit alleged that the corporate proxy incorrectly described all of the milestones that led to vesting in stock options as “stretch” goals, even though internal forecasts indicated that three operational milestones were likely to be achieved within 18 months from the shareholders. vote.

The board said it believed in 2018 that “many of Tesla's past successes were largely driven by Mr. Musk's leadership.” She wanted to motivate Musk to “dedicate his time and energy” to the company when he also had interests in other companies.

Eric Gordon, a lawyer and business professor at the University of Michigan, said that since Tesla will remain a Delaware company at the time of the vote on the package, shareholders can still challenge it in Delaware courts.

But since Tesla revealed facts at the dealership about the board's ties to Musk, he expects Tesla to win. “If disinterested shareholders had been properly informed and voted in favor, the court would not have actually had anything to do,” Gordon said. He added that Delaware courts “want corporations to disclose and let shareholders decide.”

Gordon said Musk may not see much legal benefit from moving Tesla's headquarters to Texas, because the law governing executive pay is similar to Delaware. “There is no case in Texas that tells you that if this had happened in Texas, you would have had a different outcome.”

Tesla posted record deliveries of more than 1.8 million electric cars worldwide in 2023, but the value of its shares has eroded rapidly this year as… Electric car sales are declining.

the a company It said it delivered 386,810 vehicles from January to March, about 9% fewer than it sold in the same period last year. Future growth is in doubt and it may be difficult to convince shareholders to support a large pay package in an increasingly competitive environment around the world.

The proxy statement filed with the Securities and Exchange Commission does not address Musk's case. Claiming to own 25% of Tesla shares For him to pursue artificial intelligence and robotics in the company. He currently owns 20.5% of the company.

In January, Musk challenged Tesla's board of directors in a post on X, the social media platform he now owns, to come up with a new compensation package. Unless he gets 25%, he wrote that he would prefer to build products outside of Tesla, apparently with another company.

Wedbush analyst Dan Ives, usually bullish on Tesla, said in an interview that the filing does not address multiple issues including Musk's future compensation.

“It's the elephant in the room because Musk threatened about X, and that was a huge drag” on Tesla shares, Ives said.

He said Musk needs to commit to being Tesla CEO for three to five years and developing artificial intelligence with the company. When Tesla reports first-quarter earnings next week, Musk needs to clarify growth plans, including the case for the Model 2, a small electric car that costs about $25,000, Ives said. Otherwise, he added, dark days lie ahead.

“There is a feeling that the plane is crashing into the ocean and that the painting focuses on the salted peanuts,” he said.

At the time of the Delaware court ruling, Musk's package was worth more than $55.8 billion, but a decline in stocks reduced that to $44.9 billion at the close of trading on Friday, Tesla's filing said.

Starting last year, Tesla did just that Prices reduced by $20,000 On some models. Price cuts caused the value of used electric cars to decline and squeezed Tesla's profit margins.

This week, Tesla said so It was letting about 10% of its workers goabout 14,000 people.

Tesla Inc. shares closed. Down about 1% on Wednesday.

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Choi and Chapman reported from New York.