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Tesla board wants shareholders to approve Elon Musk's giant pay package. Critics say it's so big, it's illegal

Joseph N. DiStefano, The Philadelphia Inquirer on

Published in Automotive News

Tesla Inc. "Technoking" Elon Musk (his official title) and his board have sent shareholders more than a dozen appeals since early April, urging them to approve a record-breaking stock package worth over $50 billion to Musk. They are asking shareholders to vote by Tesla's scheduled annual meeting June 13.

But corporate governance critics who urged Delaware Chancellor Kathaleen McCormick to block an earlier version of the stock package — under guidelines approved by shareholders in 2018 — say the new vote won't make that very large award legal, even if Musk wins the new shareholder vote.

The vote is designed to replace an earlier version of the pay package, blocked in January by McCormick, who found that Musk unfairly "dominated" the process of setting his own pay and neglected rules for setting executive compensation at publicly traded companies.

Musk already owns Tesla stock worth over $70 billion and has said he'll keep running Tesla, even if he doesn't get the extra shares. The new shares would give Musk direct ownership of 22% of Tesla, up from the current 13%, according to shareholders' advisory firm Glass Lewis Inc.

Besides the share grant vote, Musk also wants shareholders to approve moving the company's legal home to Texas so future disputes can be tried far from what Musk calls the "uncertainty" of Delaware, which calls itself "America's corporate capital" for the large number of companies that are chartered there and use the state's business-friendly Court of Chancery to resolve disputes.

Ratification of the revised proposal would reward Musk for Tesla's "unprecedented growth" and "restore Tesla's shareholder democracy," Tesla board chair Robyn M. Denholm, an Australian accountant who has become a multimillionaire from Tesla stock grants, said in a 1,500-page April 29 proxy statement to company shareholders.

 

Despite complaints by corporate managers like Musk when decisions go against them, corporate-law scholars say Delaware has been the favored legal home of U.S. corporations because of predictable, speedy dispute resolution by its appointed Chancery Court judges. Texas is setting up its own business courts, where plaintiffs who sue companies will be able to pick which of Texas' 254 counties to go to trial, and demand trials by jury, which corporations often prefer to avoid.

Despite those limitations, Musk hopes courts in Texas, where Tesla is now based, will be less critical of his actions than Delaware, where McCormick previously forced Musk to honor his $44 billion agreement to buy Twitter when he tried to renege.

But the lawyers who challenged the earlier pay package on behalf of a small Tesla investor, Richard Tornetta, a former heavy-metal drummer from Norristown, have filed additional motions arguing that shareholders' approval should "not 'restore' to Mr. Musk" his stock or options grants — even if the vote goes Musk's way — until further litigation over how Tesla is governed gets resolved under Delaware corporate law.

"He's going around telling everyone that if this vote goes through, he gets the money. But that's not how it works," said Charles Elson, Wilmington-based vice chairman of the American Bar Association law section's corporate governance committee and a longtime consultant to large corporations.

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