Although Tesla CEO Elon Musk's compensation package was previously declared invalid by a Delaware court, Tesla filed proxy documents on Wednesday stating that it will once again ask shareholders to vote on Musk's $56 billion compensation package. Additionally, Tesla also announced that it will convene a vote to transfer the company's registration from Delaware to Texas.
Media reports indicate that Tesla Chair Robyn Denholm criticized the Delaware court's January ruling in the proxy documents, stating that it equates to a reassessment by shareholders of Musk's performance-based rewards. "Because the Delaware court reassessed the investors' decision, Musk has not received any compensation for his work at Tesla over the past six years, during which he has helped the company achieve significant growth and shareholder value has increased substantially."
Shareholders who sued Tesla criticized the CEO's compensation as being too high and opaque. The judge described Tesla's directors in the previous ruling as "subservient servants of a domineering master" and stated that the top brass did not look after the best interests of investors.
Musk, who runs six companies, stated earlier this year that he would prefer to build AI and robotics products elsewhere unless he owns 25% of Tesla. Data shows that Musk currently owns about 13% of Tesla's shares.
Tesla's stock price fell by more than 1.8% at the opening of the US stock market on Wednesday, then narrowed to a 0.65% decline, closing at $156.09. The stock has fallen 37% this year due to an unexpected drop in vehicle deliveries, which had been anticipated to slow down. Earlier this week, Tesla announced plans to cut more than 10% of its global workforce and the departure of two senior executives. Barclays previously downgraded its target price for Tesla to $180 (previously $225), maintaining its neutral rating.
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Tesla: 2018 Compensation Plan Has Received Shareholder Support
Tesla's board of directors established a special committee this year to determine whether the company should continue to be registered in Delaware and whether to hold a shareholder referendum on changing to another state while determining Musk's compensation. The committee stated in a document that negotiations for a new compensation package would take time and result in additional compensation expenses of billions of dollars, but these troubles could be avoided by directly approving the 2018 compensation plan.
The special committee's report pointed out that a new referendum would allow investors to "decide for themselves whether they believe Musk's compensation is fair, considering his achievements and their impact on shareholders."
According to documents released by Tesla, dozens of institutional shareholders have already contacted Tesla and expressed support for the 2018 compensation plan, including four of the top ten shareholders. In addition, thousands of retail investors have also sent letters and emails to the board, similarly expressing their support.
Tesla cited a letter from one of its largest shareholders, T. Rowe Price Group Inc., sent to Denholm, in which the investment firm called the court ruling "an unpleasant surprise" and suggested holding another vote on the compensation package. "Hindsight is 20/20, and we believe the debate over whether the compensation plan is in the long-term interests of investors is entirely unnecessary. Investors should not expect to reabsorb the canceled options and consider all value creation as being provided to us gratuitously."Fully Committed to Texas
Tesla's plan to move to Texas can be considered one of the consequences of a Delaware court ruling. Musk had previously relocated several of his closely held companies, including SpaceX, which applied to move from Delaware to Texas in February of this year.
Musk posted on his social media site X at the time, saying: "If your company is still incorporated in Delaware, I suggest moving to another state as soon as possible."
According to Tesla's documents, the company initially listed nine states as potential incorporation destinations, which was then narrowed down to four states, including California, Nevada, New York, and Texas. Ultimately, Tesla chose Texas, after all, this is where Tesla's headquarters is located, and the company opened its latest electric vehicle factory in Texas two years ago.
Tesla stated in the documents, "Tesla is fully committed to Texas, with Tesla's corporate identity increasingly intertwined with Texas."
Tesla's shareholder meeting is expected to be held on June 13th. In addition to compensation and relocation matters, Tesla will also ask investors to re-elect two directors: Musk's brother Kimbal Musk and media mogul Murdoch's son James Murdoch.
Furthermore, Tesla also stated that it paid about $200,000 to Musk's social media site X last year as part of a multi-platform advertising campaign. The company also paid approximately $2.9 million to a company operated by Musk last year and earlier this year for security services for Musk himself.
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