Tesla will ask shareholders to reapprove CEO Elon Musks $56 billion pay package, months after a Delaware court found it deeply flawed and voided it.
The company is also seeking to reincorporate in Texas as a direct result of the court decision.
Musk has publicly and bitterly decried both the decision and continued incorporation in Delaware in the aftermath of the case, but Teslas board says it arrived at both decisions independently.
Tesla said Wednesday it will ask shareholders to reinstate CEO Elon Musks $56 billion pay package, which a Delaware judge voided earlier this year after ruling that the record-setting compensation deal was deeply flawed. Tesla also said it would ask shareholders to approve moving the companys incorporation from Delaware to Texas. Musk had suggested the move after his pay package was ruled illegal. The announcement Wednesday came days after the automaker said it would cut its workforce by 10%.
Tesla said the court decision created a fundamental problem for the company. The two proposals are likely to be fiercely controversial. Tesla has hired a proxy solicitor, Innisfree M&A, and plans to spend an undetermined amount, in the millions, to help secure the votes for the two proposals, according to the filing. Tesla has not hired Innisfree since 2018, when it first asked shareholders to vote on Musks pay package. Companies often only advertise the cost of proxy solicitations when major proposals or proxy fights are expected. (Innisfree was also suing Musks Twitter over unpaid bills.) Musks pay package was invalidated after a shareholder won a lawsuit against the company earlier this year. Delaware Chancery Court Chancellor Kathaleen McCormick found that Musk, rather than Teslas board, controlled the company and that the boards compensation committee, rather than negotiating with Musk over the terms of the deal, worked alongside him, almost as an advisory body.
The Tornetta decision, named after Tesla shareholder Richard Tornetta who brought the suit, prompted Musk to say, Never incorporate your company in the state of Delaware.
McCormick was also the presiding judge in the legal action compelling Musk to buy Twitter, which he renamed. Tesla, in its Wednesday filing, cast doubt on her decision. The Company and the Board believe that the decision in Tornetta ignored material evidence presented at trial and that the Delaware Court made errors of fact and incorrect conclusions of law, Tesla said in the proxy filing. The company also noted that dozens of institutional stockholders have told Tesla that they disagree with the Tornetta decision. Delaware has long been a preferred home for corporations more than 60% of the Fortune 500 companies are incorporated there because the state has a robust legal framework and court system dedicated to resolving corporate issues, like executive pay, but also broader contract negotiations. Moving from Delaware to Texas Teslas new proposal cautions shareholders that the Delaware court found the companys initial 2018 disclosures to be deficient, and urged them to read the full text of the decision. In January, the same day the pay package was rejected, Musk asked his X followers if Tesla should reincorporate in Texas. Months later, Teslas board agreed and is now proposing the move to Texas and asking shareholders to approve the move.
Tesla connected the Delaware decision directly to its proposal, but it said that both Elon Musk and his brother Kimbal Musk, who also sits on Teslas board, recused themselves from deliberations. The company said that Teslas home and future are in Texas and that the board considered every U.S. state before narrowing it down to a head-to-head comparison between Delaware and Texas, Musks public comments notwithstanding. Tesla also defends the move as commonplace, saying that 35% of S&P 500 companies are not incorporated in Delaware. The company acknowledged Delawares court system as world class, but said doing new things is part of Teslas DNA, and how it has become one of the most valuable companies in the world.
Tesla connected the Delaware decision directly to its proposal, but it said that both Elon Musk and his brother Kimbal Musk, who also sits on Teslas board, recused themselves from deliberations.
Delaware Chancery Court Chancellor Kathaleen McCormick found that Musk, rather than Teslas board, controlled the company and that the boards compensation committee, rather than negotiating with Musk over the terms of the deal, worked alongside him, almost as an advisory body.
I can understand Muskrat's shock and dismay here. How can the normal function of a board's compensation committee (i..e, conniving with the executives to increase their pay) be illegal?
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"The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command." -- 1984