Elon Musk attends the premiere of “Lola” held at the Regency Bruin Theater in Los Angeles, California, US, February 3, 2024.
Audi Girucci | Reuters
Tesla It plans to ask shareholders to return CEO Elon Musk's $56 billion pay package from 2018 after a Delaware court struck down a record stock grant earlier this year, calling it “deeply flawed.”
The company announced the move in an initial proxy filing on Wednesday, just days after the company told employees it would reduce headcount by 10%.
Tesla said the court's decision created a “fundamental problem for the company.” As a result, Tesla also plans to ask shareholders to allow the company to move its state of incorporation from Delaware to Texas, something Musk has threatened to do in the wake of the unfavorable court ruling.
Both proposals are likely to be highly controversial. Tesla has hired a proxy attorney, Innisfree M&A, and plans to spend an unspecified amount, in the millions, to help secure votes for the two proposals, according to the filing.
Tesla has not hired Innisfree since 2018, when it first asked shareholders to vote on Musk's pay package. Companies often only announce the cost of proxy requests when large bids or proxy fights are expected.
Musk's pay package was discussed after a shareholder won a lawsuit against the company earlier this year. Kathleen McCormick, counsel for the Delaware state court, found that Musk, not Tesla's board, controlled the company and that the board's compensation committee, instead of negotiating with Musk about the terms of the deal, “acted alongside him, almost as an advisory body.” .
Tornita's decision prompted Musk to say, “Never incorporate your company in Delaware.”
Tesla, in its filing on Wednesday, cast doubt on the decision by McCormick, who was aware of some of Musk's other legal dealings. “The company and the Board of Directors believe that the decision in the Tornetta case ignored the material evidence presented at trial and that the Delaware court made errors of fact and incorrect conclusions of law,” Tesla said in its proxy filing.
The company also noted that “dozens of institutional shareholders” told Tesla they disagreed with Tornetta's decision.
Delaware has long been a favored home for corporations — more than 60% of the Fortune 500 are incorporated there — because the state has a strong legal framework and a judicial system dedicated to resolving corporate issues, such as executive pay, but also broader contract negotiations.
Tesla's new motion warns shareholders that a Delaware court found their initial 2018 disclosures deficient, and urges them to read the full text of the decision.
In January, the same day the pay package was rejected, Musk asked his Company X followers if Tesla should re-establish a company in Texas. Months later, Tesla's board of directors is now asking shareholders to approve their answer to that question.
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