Tesla shares spiked 3.5% in early trading on Thursday after CEO Elon Musk signaled that shareholders would overwhelmingly approve his controversial $56 billion pay package, as well as his plan to relocate the company’s legal headquarters to Texas.
Shareholders can cast and change their votes on the two resolutions up until 4:30 p.m. ET, when the company’s annual meeting kicks off in Texas. Musk shared charts which showed both measures were easily clearing the threshold required for passage, according to preliminary tallies.
“Both Tesla shareholder resolutions are currently passing by wide margins!” Musk wrote on X. “Thanks for your support.”
A “yes” vote would mark the latest twist in an ongoing legal war over Musk’s controversial pay package. Tesla is fighting to reverse a Delaware Chancery Court Judge Kathaleen McCormick’s decision earlier this year to void the compensation plan, which she called an “unfathomable sum.”
Large institutional investors and retail investors were driving support for the two resolutions, a person familiar with the vote tallies told Reuters.
Other investors, such as the California State Teachers’ Retirement System, have signaled they would vote against the pay package. Proxy advisory firms Glass Lewis and Institutional Shareholder Services each recommended that shareholders reject the compensation plan.
The judge’s ruling arose from a lawsuit filed by Tesla shareholder Richard Tornetta, who argued in court that the deal was excessive and unfair to shareholders. McCormick agreed and called the process by which Tesla’s board approved the package “deeply flawed.”
Immediately after the judge’s decision, Musk said Tesla shareholders would vote on shifting the company’s state of incorporation to Texas from Delaware. The company’s physical headquarters is already located in Austin, Texas.
“If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible,” Musk said in February.
The pay plan – the largest of its kind in US corporate history – consists of mostly stock option awards tied to the company’s performance. Musk hit all performance targets required to obtain the full amount.
McCormick’s ruling sparked concerns about Tesla’s ability to retain Musk, who has shepherded the electric car maker to major success, as its CEO. The company’s stock has fallen 26% since the start of the year as Tesla contends with a sales slump.
Approval would mark a “pop the champagne moment for Musk and Tesla shareholders,” according to Wedbush analyst Daniel Ives.
“This removes a $20-$25 overhang on the stock in our opinion that has weighed on shares since the head-scratching Delaware ruling set this Twilight Zone soap opera on earlier this year,” Ives said in a note to clients.
Shareholder approval would serve as both an endorsement of Musk’s tenure and an acknowledgment that investors don’t want to risk the company’s future. Tesla’s share price has dropped about 60% from its 2021 peak as EV sales have slowed and Musk’s attention has wavered between Tesla and other companies he runs.
“This vindicates Musk and allays some investor concerns around his waning interest in Tesla,” said Sandeep Rao, senior researcher at Leverage Shares, which owns Tesla’s stock.
Board chair Robyn Denholm said in a regulatory filing earlier this month that reinstating the pay package was necessary for “retaining Elon’s attention and motivating him.”
Musk has threatened to build AI and robotics products outside Tesla if he fails to gain enough voting control, which requires the 2018 pay package to be approved.
“Even if the shareholders do approve the old package, it is not clear that the Delaware court will allow that vote to be effective,” said Adam Badawi, a law professor at UC Berkeley.
Musk may have to wait years to find out whether he will get his pay package restored as appeals wind their way up to Delaware’s Supreme Court.
WIth Post wires
