Tesla’s pay battle tests the strength of Elon Musk’s mystique

In 2018, Tesla shareholders approved the largest pay package in history for Elon Musk. Six years later, would they do it again?

The electric car company will find out this week at its annual meeting, as it seeks to show support for the nearly $50 billion deal.

The package – valued at about 300 times what the highest paid manager in the United States received last year – received the support of 73% of shareholders who voted six years ago.

The compensation plan gives Mr. Musk rights to nearly 300 million shares — roughly 10% of the company’s stock — as a reward for the company for achieving goals that were once considered laughable, such as becoming a $650 billion company.

But earlier this year, a Delaware judge invalidated the deal after a small investor sued, ruling that the amount was “unfair” and that the process of determining the package, by a Musk-dominated board, was “deeply flawed.”

Instead of backing down, Tesla said it would put the deal to another vote and seek to reincorporate the company outside of Delaware, calling the decision “fundamentally unfair and inconsistent with the will of shareholders.”

Tesla says the goals were ambitious and that compensation was necessary to keep the billionaire involved.

“We must stick to our deal,” Chairman Robin Denholm wrote to shareholders this month.

The pay deal, which was presented to the world six years ago, sparked controversy, but few questioned Musk’s importance to Tesla’s future.

But this time, the fight raises difficult questions about his leadership, at a time when Tesla shares have fallen sharply from their highs and its dominant lead in the electric car industry is under pressure.

Musk has been criticized for alienating potential buyers with controversial political musings, and has been accused of diverting attention — and resources — to his other companies, including social media site X, formerly Twitter, which he bought in 2022.

“If this had been 2018, I would have voted yes, but today, after everything that happened, I voted no,” says investor Vin Cooley, an IT consultant from Colorado, who owns one of the company’s cars and was the first to buy a Tesla. stocks for nearly a decade.

Although the 42-year-old expects the deal to pass, he hopes the tough vote will send a message to Tesla’s board, which for years has faced concerns that it is not exercising enough oversight over Mr. Musk. He’s not worried about losing Mr. Musk, believing Tesla has reached a point where it can succeed without him.

“Since the Twitter acquisition closed, a lot of the decisions that Elon Musk has made specifically have been very questionable,” he says.

“Ultimately, while he is CEO, his responsibility lies with Tesla and I think the board has lost sight of that,” he says. “This is my chance to have my voice heard, no matter how small.”

Legal experts say it is not clear whether the court will accept the re-vote, which is non-binding, and allow the company to restore the pay package. At least one shareholder has already filed a lawsuit against the company’s move.

But Tesla appears to be hoping that a landslide victory will help its legal battle continue, says Anne Lipton, a law professor at Tulane University.

“If shareholders overwhelmingly approve the pay package, Musk hopes, and perhaps rightly, that the court will think twice before striking it down again,” she says.