The votes ahead of the company’s annual meeting on Thursday gave investors a say on both proposals, though the compensation proposal has no binding legal power. It’s widely seen as a referendum on Musk’s leadership amid a recent sharp decline in Tesla’s shares, and could play a role if the chief executive officer and world’s <-bsp-bb-link state="{"bbHref":"bbg://screens/BBIO%201954518","_id":"00000190-141e-d5f2-a594-d73e949a0000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">third-richest person-bsp-bb-link> loses an appeal of Delaware Chancery Judge <-bsp-person state="{"_id":"00000190-141e-d5f2-a594-d73e949a0001","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Kathaleen St. J. McCormick-bsp-person>’s January decision.
In voiding the compensation plan — the largest ever awarded to a US corporate executive — the judge pointed to board director conflicts of interest and other problems. Afterward, Musk, 52, pushed for the move to Texas from Delaware.
Elon Musk
Photographer: Andrew Harrer/Bloomberg
Musk took some of the drama out of the day’s events by posting on X late Wednesday that shareholders had voted in favor of both proposals “<-bsp-bb-link state="{"bbDocId":"SF0FKJT0AFB4","_id":"00000190-141e-d5f2-a594-d73e949c0000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">by wide margins-bsp-bb-link>.” (See Question 7 below.) The official outcome was announced at about 5 p.m. New York time on Thursday, though the company didn’t disclose the breakdown of the vote.
Here’s what you need to know:
1. Now that Tesla shareholders have approved the revived package, does Musk get his pay?
Not quite. The shareholder vote is mostly one of confidence — a chance for the board to show that investors still want to reward Musk handsomely. It has no direct impact on the legal dispute over the 2018 compensation package. The judge can take notice of it or ignore it. Same with the Delaware Supreme Court, which would hear any appeal.
That court could overturn McCormick’s decision and clear the way for Musk’s pay, though that would be a surprising outcome. If it did, the legal obstacle to the compensation package would be removed no matter how the current shareholder vote comes out, according to
The value of Musk’s stock option award has declined with the drop in Tesla’s shares, from as much as $55.8 billion when the company achieved a series of milestones to about $46.8 billion now, according to the <-bsp-bb-link state="{"bbHref":"bbg://screens/BBIO%201954518","_id":"00000190-141e-d5f2-a594-d73e949e0001","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">Bloomberg Billionaires Index-bsp-bb-link>.
2. So what happens next in the Delaware fight?
McCormick will hear arguments July 8 on whether lawyers for the Tesla shareholder who successfully challenged Musk’s pay deserve a legal fee of more than $5 billion. The lawyers are asking for their fee in Tesla stock. That request has drawn more than 1,300 letters and over 180 emails to McCormick from individual investors opposing the request, according to court filings. Once McCormick decides on the fee, she’ll issue a final ruling in the case. Musk then has 30 days to appeal it to the Delaware Supreme Court.
3. Now that shareholders have signed off on the Texas move, how fast can that happen?
“As soon as practicable” following the annual general meeting, Tesla said in its proxy statement. Assuming Tesla’s lawyers have prepared the necessary paperwork ahead of the vote, the process to shift the company’s legal home out of Delaware can take place quickly. Once the required documents are filed with the Texas secretary of state, it can take as little as 24 hours, or as long as five business days, for the move to be processed and recognized by the state.
4. Once that’s done, could Tesla’s board reinstate Musk’s pay package?
Again, not quite. Moving Tesla’s state of incorporation to Texas means the board has to start from scratch on Musk’s compensation. Tesla couldn’t just approve the same plan as in 2018, because Texas courts are legally obligated to honor the Delaware court’s decision, said Elson, the corporate governance expert. The board would have to make substantial changes to the plan — ensuring that directors with conflicts of interest don’t participate in considerations of Musk’s pay, for example — and not just “put a Band-Aid on it,” he said.
Shareholders would then have to vote on Musk’s compensation once more. And if an investor wanted to then challenge it, as one did in the Delaware legal battle, they would have to sue in Texas.
Chancellor Kathaleen St. J. McCormick
Photographer: Eric Crossan/AP
5. Does Texas even have a business court like Delaware’s?
Not yet. The state’s business courts are scheduled to open in September, but Texas officials are currently struggling to recruit judges with the requisite experience in complex business litigation. The starting salary for a judge on a Texas business court would be $140,000, while a Delaware Chancery judge starts at almost $185,000. So it’s unclear how long a suit challenging Musk’s pay would take to be processed by Texas’ new courts.
6. Why do Musk and Tesla want to move to Texas anyway?
Musk and his fellow directors dismiss McCormick’s ruling as an injustice and are banking on Texas’ new business courts to give them the latitude to resurrect his pay plan. Tesla directors contend Musk should be fairly compensated for sending the EV maker’s shares soaring over the years after they arranged his compensation in 2018. Others, such as Elson, argue that to go back and give one of the world’s richest people stock options worth more than $46 billion at this point is a waste of corporate assets.
7. Could Musk’s post on the voting have any regulatory or legal consequences?
The post is unlikely to affect McCormick’s final judgment in the case or the result of any appeal of her decision to the Delaware Supreme Court, Elson said. But he said the <-bsp-bb-link state="{"bbHref":"bbg://securities/13165Z%20US%20Equity","_id":"00000190-141e-d5f2-a594-d73e94a30003","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">US Securities and Exchange Commission-bsp-bb-link>, which has sanctioned Musk for <-bsp-bb-link state="{"bbDocId":"SCQ03AT0G1KW","_id":"00000190-141e-d5f2-a594-d73e94a40000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">past tweets-bsp-bb-link>, could see it as an impermissible proxy solicitation.
“It’s like encouraging people to get on the winning side,” Elson said.
Pre-meeting voting was still open when Musk posted. The SEC hasn’t commented on the post.
8. Has anyone challenged the new proxy vote itself?
A shareholder sued Tesla directors this month alleging they breached their legal duties in agreeing to the do-over vote on Musk’s pay and made misleading disclosures about the vote. He accuses Musk personally of using “strong-arm tactics” to win shareholders’ backing for the proxy proposals. But he didn’t specifically ask McCormick to block the vote. Instead, he wants her to declare that the company needs more than a simple majority to move its incorporation out of Delaware. He contends directors need more than 66% of the votes cast to legally make the move.
9. Why was Tesla incorporated in Delaware in the first place?
Delaware is the nation’s epicenter of business incorporations, with more than 1 million businesses registered in the state. Almost 70% of Fortune 500 companies are incorporated there, mostly to take advantage of Delaware’s nearly 100 years of corporate law rulings and its chancery court, which can quickly hear corporate litigation without a jury. The court’s jurists, such as McCormick and
The Reference Shelf
- More explainers on <-bsp-bb-link state="{"bbDocId":"S8WPU4T0G1KW","_id":"00000190-141e-d5f2-a594-d73e94a70002","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">Musk’s beef with Delaware-bsp-bb-link>, <-bsp-bb-link state="{"bbDocId":"SCPGUFT0G1KW","_id":"00000190-141e-d5f2-a594-d73e94a80000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">his robotaxi dream-bsp-bb-link>and the <-bsp-bb-link state="{"bbDocId":"SC3NEKDWLU68","_id":"00000190-141e-d5f2-a594-d73e94a80002","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">EV transition-bsp-bb-link>.
- An episode of the Elon, Inc. podcast about <-bsp-bb-link state="{"bbDocId":"SEZELAT0G1KW","_id":"00000190-141e-d5f2-a594-d73e94aa0000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">Musk’s massive pay package-bsp-bb-link>.
- Why the Tesla vote<-bsp-bb-link state="{"bbDocId":"SEIEBODWLU68","_id":"00000190-141e-d5f2-a594-d73e94ab0000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">won’t guarantee that Musk gets his pay package-bsp-bb-link>.
(Updates with outcome of shareholder vote)
--With assistance from <-bsp-person state="{"_id":"00000190-141e-d5f2-a594-d73e94ad0001","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Dana Hull-bsp-person>.
To contact the reporters on this story:
<-bsp-person state="{"_id":"00000190-141e-d5f2-a594-d73e94b10000","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Madlin Mekelburg-bsp-person> in Austin at mmekelburg@bloomberg.net
To contact the editors responsible for this story:
<-bsp-person state="{"_id":"00000190-141e-d5f2-a594-d73e94b30000","_type":"00000160-6f41-dae1-adf0-6ff519590003"}">Peter Jeffrey-bsp-person> at pjeffrey@bloomberg.net
Misyrlena Egkolfopoulou, Catherine Larkin
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