Facing criticism that it is overly beholden to Elon Musk, Tesla's board announced Wednesday that it will give Musk virtually everything he wants, including the largest pay package in the company's history.
If court stumbles and the auto market caused Tesla's board of directors to do some soul-searching, there was no sign of that in the latest announcement. Instead, the board redoubled its support for Musk, Tesla's chief executive, risking infuriating activist investors and triggering further lawsuits.
The board's decision to ask shareholders to back a compensation plan for Musk worth about $47 billion comes less than three months after a Delaware judge invalidated the same 10-year pay package. Ta. The judge said that went too far and that the company had not properly disclosed the details to shareholders who approved it in 2018.
Tesla will now provide shareholders with more information about how the plan was developed and seek approval again. The vote comes as investors have grown increasingly concerned about the electric car company, whose sales have declined and its stock price has fallen by more than a third this year. Additionally, Musk hasn't offered much of a plan for restoring the company's momentum.
Lawyers representing shareholders in the Delaware case could not be reached Wednesday for comment on future steps. But the board's action could lead to more lawsuits against Tesla, as the company faces legal pressure from regulators, customers and people who say they are victims of flaws in Tesla's driver-assistance systems. There is.
Two days before the move to restore Mr. Musk's status as one of the world's richest people, Tesla announced to its employees that it would lay off about 14,000 people, or 10% of its workforce.
“The optics certainly don't look good,” said Jason Schletzer, an associate professor at Georgetown University's McDonough School of Business who studies corporate governance.
There is no sign that Tesla's board is seeking to exercise tighter control over Mr. Musk, whose support for right-wing conspiracy theories has alienated many potential customers. On the contrary, in a document submitted Wednesday in preparation for the company's June shareholder meeting, the board stood firm in its support for Mr. Musk.
The board asked shareholders to approve moving Tesla's corporate housing from Delaware to Texas, but on the day a Delaware court vacated Musk's pay package in January, Musk I asked for a change. The board also told shareholders to reappoint two directors with close ties to Musk, media executive James Murdoch, who was on leave with Musk, and his brother Kimbal Musk. asked to do so.
The company's move is effectively a rebuke to the judge who invalidated Musk's 2018 pay plan, Delaware Court of Chancery Judge Catherine St. J. McCormick. In his ruling, the judge criticized the board for lax oversight of Mr. Musk.
“The board and the shareholders were controlled by Mr. Musk,” Lynn Vincent, an associate professor at Syracuse University's Whitman School of Management, said of the court's ruling. “The people who supported this deal were not the ones who actively defended the interests of shareholders. They were embedded in his personal and financial life.”
Tesla's board is seeking to override Finance Secretary McCormick's decision by asking shareholders to restore Musk's compensation.
“We do not agree with the Delaware court's decision, and we do not believe that the Delaware court's decision reflects the true nature of corporate law or “I don't think it's something that actually works.” The company separately announced that it plans to appeal the judge's ruling.
Denholm said it would be “fundamentally unfair” to deny Musk the compensation he had been promised. He pointed out that Tesla has not paid Musk anything in the past six years other than the discontinued compensation plan.
But Musk has made billions of dollars from Tesla stock. Brian Dunn, a former compensation consultant and visiting lecturer at Cornell University's School of Industrial and Labor Relations, said pay plans incentivize executives for future performance, not reward them for past work. Ta.
“There's nothing in the plan that calls for us to focus on Tesla,” Dunn said, noting that Musk has ownership interests in ventures such as social media platform X and SpaceX. Ta. “It shows that the board is still very satisfied,” he added.
But some investors were uncomfortable with the fairness argument, given Tesla's recent woes.
Antoine Argouges, CEO of activist investor group TulipShare, said: “We are approving the largest pay package in our history as the company fails to meet its current targets and lays off 10% of its workforce. This is terrible timing to ask for this.” .
TulipShare has proposed holding a shareholder vote on whether Tesla's executive compensation should be conditional on meeting standards on carbon emissions and worker rights. Tesla's board opposes the proposal.
Denholm said the decision to leave Delaware is not an attempt to evade the state's judicial system, but a natural step for a company to increase its presence in Texas. “We have many manufacturing, operations and engineering employees in Texas, and many of our executives are based in Texas,” he told shareholders.
She insisted the board was independent. Denholm said the board member who evaluated Musk's compensation plan was Kathleen Wilson Thompson, a former human resources executive at Kellogg and Walgreens, who does not appear to have a personal connection to Musk. .
Tesla's board members are listening to shareholders, the board said in a proxy statement filed Wednesday. “Tesla's board maintains an active dialogue with its major shareholders throughout the year to ensure that Tesla's board and management understand and consider the issues that matter most to shareholders,” the statement said.
Mr. Denholm and the board of directors did not respond to Mr. Musk's statement in January that he would pursue certain businesses outside of Tesla unless he was given control of at least 25% of the company's stock. He now owns about 13% of Tesla stock, down from 22% after selling billions of dollars in stock to finance the acquisition of Twitter Inc. (now known as X).
But Syracuse University's Ms. Vincent said Tesla provided little information about how layoffs and compensation decisions were made. “I don’t think any of this has been transparent,” she said.
Tesla's board did not address concerns that the company is losing control of the electric vehicle market. Denholm offered a rosy outlook for Tesla's future.
“Tesla is an agile organization with an unparalleled speed of innovation, resulting in us exceeding all expectations through visionary leadership and, most importantly, some of the world's most talented and dedicated employees. products and services created,” she said in a message to shareholders. .
The decision to lay off 10 percent of these employees was necessary to reduce costs, increase productivity and “prepare for the next phase of growth,” she added.