Tesla again seeks shareholder approval for Musk’s 2018 pay that a judge invalidated. By Reuters

Posted by Arsheeya Bajwa

(Reuters) – Tesla on Wednesday asked shareholders once again to approve Chief Executive Officer Elon Musk’s record $56 billion pay set for 2018, which was rejected by a Delaware judge in January.

The compensation does not include salary or cash bonuses, but is set based on Tesla (NASDAQ:)’s market value growing by up to $650 billion over the next decade. According to LSEG data, Tesla is currently valued at $500.36 billion.

The re-vote comes ahead of next week’s quarterly results for Tesla, which has suffered from sluggish demand as well as a blow to Musk last year for his political leanings and anti-Semitic comments.

Musk’s pay was rejected by Delaware Court of Chancery judge Kathaleen McCormick (NYSE:), who characterized the compensation awarded by the board as an “incalculable sum” that was unfair to shareholders.

The January ruling, which is subject to appeal, invalidated corporate America’s largest pay package.

“We disagree with the Delaware court’s decision and do not believe what the Delaware court said is different from how corporate law should or does work,” board Chairman Robyn Denholm said in a letter included in the regulatory filing. “He said.

In calling for a re-vote, Tesla is using a provision of Delaware law that allows the company to ratify technically flawed actions, such as a stock sale, before the board approves a stock increase, although this is not always controversial.

The commission’s special committee described the approach as “novel,” saying it could not predict whether reauthorization of the pay package would be appropriate under Delaware law.

“Even if the proposal is approved, the judge’s decision cannot be overridden, which is legally binding, at least until Musk successfully appeals,” said Xu Jiang, an associate professor of business administration at Duke University.

If shareholders overwhelmingly approve the proposal a second time, it will help Musk with future appeals, Jiang said.

Tesla also urged investors Wednesday to approve the company’s plan to move its incorporation from Delaware to Texas.

The change could escalate the fight between Musk and the state of Delaware, where he has repeatedly objected to regulators and what he considers bureaucracy.

Earlier this year, Musk moved his rocket company SpaceX to Texas and brain chip startup Neuralink from Delaware to Nevada.

Tesla mounting issues

After more than doubling in 2023, Tesla’s stock has lost more than 36% of its value so far this year as EV sales have slowed globally.

Musk’s reputation as CEO has also been hit by several controversies, including his increasing embrace of right-wing politics and his support of anti-Semitic conspiracy theories in late 2023.

Developments such as scrapping plans for affordable EVs and deciding to cut at least 10% of its workforce have led analysts to question the company’s strategy.

“This year, as Musk and Tesla significantly miscalculated the overall weak demand for EVs globally due to demand issues in China and increased competition in all sectors,” Wedbush analyst Dan Ives said in a research note. “Tesla’s stock price was a disaster,” he said.