Tesla plans to seek shareholder approval once more for a $56 billion compensation plan endorsed in 2018 for CEO Elon Musk, which was invalidated by a US court earlier this year.
According to a submission to federal regulators on Wednesday, Tesla’s Chair Robyn Denholm affirmed the board’s support for the initial proposal. Denholm argued that the company’s ethos of embracing significant risks in pursuit of substantial rewards has been a longstanding feature.
Musk’s compensation package, valued at up to $55.8 billion in 2018, was invalidated by a Delaware court in January following a complaint from a shareholder. The court ruled that Musk had exerted undue influence over the board, which lacked sufficient independence from him.
Denholm, in the Securities and Exchange Commission filing, reiterated the board’s objection to the court’s decision. She argued that the ruling was contrary to the principles of corporate law and did not align with standard practices.
“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.”
In a second proposal before the June 13 shareholder meeting, the carmaker is seeking shareholder support to relocate the company’s state of incorporation from Delaware to Texas, which Tesla considers its home, Denholm stated in the filing.
These proposals arise during a challenging period for Tesla, with its shares declining by 37 percent in 2024 thus far, contrasting with the approximately six percent gain in the S&P 500 during the same period.
Earlier this week, Tesla revealed plans to reduce its global workforce by more than 10 percent.
This decision follows Tesla’s report of a decrease in first-quarter auto deliveries, a decline viewed as indicative of heightened competition among electric vehicle manufacturers and decelerating demand growth in certain markets.
According to Brian Dunn, a lecturer at Cornell University specializing in compensation studies, “No board with genuine independence would approve such a large package for a CEO of a company clearly facing challenges.”
Wedbush analyst Dan Ives added, “The upcoming proxy and shareholder meeting, coupled with Tesla’s current situation, sets the stage for more volatility in the months ahead.”
In a note, Ives emphasized the importance of Musk addressing market speculation about the company potentially delaying plans for a mass-market electric vehicle at a lower price point, commonly known as the “Model 2.”
“We see the absence of a Model 2 rollout in the next 18 months as a risky move that could significantly alter Tesla’s growth trajectory in the coming years,” Ives stated.
Tesla’s shares closed down 1.06 percent following this news.
