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Elon Musk’s $54bn pay package at Tesla is as divisive as the mercurial executive himself. While his most ardent supporters see the sum as befitting the brilliant mind behind not just Tesla but SpaceX and PayPal, some shareholders see it as ludicrously outsized. The Delaware court of chancery voided it, saying the board was insufficiently independent and shareholders not properly informed. Its only chance of approval was an unorthodox shareholder vote last week that many predicted Musk would lose. He prevailed.
Musk and his companies often defy gravity. Few thought the electric-car maker could reach the 2018 pay deal’s stretched targets, and the size of the stock options Musk stood to receive thus appeared merely theoretical to many. But the company’s stock performed beyond all expectations, briefly reaching a trillion-dollar valuation. Musk’s similarly unexpected victory in the shareholder vote on Thursday shows that most Tesla shareholders attribute their gains to his acumen, and see his remuneration as deserved.
There are questions over whether the rise in share price since 2018 should all be attributed to Musk. He has often appeared to ignore Tesla in recent years, reportedly redirecting Nvidia chips meant for Tesla to his other companies and devoting an inordinate amount of time and capital to his quixotic acquisition of Twitter — a purchase he only realised by offloading Tesla stock. To the irreverent Musk, the vote is a stamp of approval. However, shareholders’ support suggests they want his attention at Tesla — and he should not shirk his responsibilities to their company.
The vote is not the end of the saga. It will now be up to the judge who initially struck down the pay deal to weigh whether the vote addresses her concerns. Though it would appear to answer questions over shareholder disclosure, the make-up of Tesla shareholders may still be a consideration. Retail investors constitute a sizeable 30 per cent of Tesla shareholders, many of whom are devoted followers of Musk and potentially more swayable than institutional shareholders by his bids to shore up support. But withholding the pay package on those grounds would be a mistake. The democratic will of shareholders should be respected.
Regardless of the judge’s decision, this case will certainly be appealed — either by Tesla, or the plaintiff lawyers who filed the initial suit against the remuneration package and are seeking a large payout for their efforts. Thursday’s results give Musk and the board the ability to reincorporate Tesla in Texas, opening the remote possibility that Musk could evade the judge’s rulings by relitigating the case in the new jurisdiction. He should resist the urge to do so. Though Musk has long been known to skirt regulatory norms, playing the court systems off against one another would be unwise and disrespectful.
Nor should Musk ignore the issues raised in the Delaware ruling. An independent pay review sought to make the board appear independent. But the shareholder vote also re-elected Musk’s brother Kimbal and close associate James Murdoch to the board — raising continuing doubts over directors’ autonomy. This will become all the more important, as dissenting shareholders’ claims may be less salient to a Texas court.
Tesla is a singular example of listed-company governance, in a category of entrepreneur-led companies that often stay private. Shareholders bought into the man as much as into the company, and have been handsomely rewarded. But the danger is that this precedent will tempt executives elsewhere to mimic Musk by pursuing giant rewards and appointing supine boards. Shareholders and directors should ensure they do not.
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