On Wednesday, Tesla announced its intention to seek shareholder approval for reinstating CEO Elon Musk’s $56 billion compensation package, which had been invalidated earlier in the year by a Delaware judge due to concerns about its structure.
In addition to this proposal, Tesla revealed its plans to ask shareholders to authorize relocating the company’s incorporation from Delaware to Texas, a move suggested by Musk following the legal setback regarding his pay package.
This announcement follows closely on the heels of Tesla’s recent decision to reduce its workforce by 10%.
According to Tesla, the court ruling on Musk’s compensation package has presented a significant challenge for the company, prompting these strategic proposals.
Both proposals are anticipated to spark considerable debate among shareholders.
To bolster support, Tesla has enlisted the services of proxy solicitor Innisfree M&A and is prepared to allocate substantial resources, potentially in the millions, towards securing votes for the proposals.
This move marks Tesla’s reengagement with Innisfree, a firm it last collaborated with in 2018 during a previous vote on Musk’s compensation package. Typically, companies only incur the expense of proxy solicitations when facing major decisions or proxy battles.
Musk’s compensation package was invalidated following a lawsuit by a shareholder earlier this year.
The Delaware Chancery Court ruled that Musk exerted significant control over Tesla, and the board’s compensation committee failed to independently negotiate the terms of the deal with him.
Referred to as the Tornetta decision, after the shareholder who filed the lawsuit, it prompted Musk to criticize incorporating companies in Delaware.
Tesla has challenged the ruling, contending that it overlooked crucial evidence and made errors in judgment. Additionally, the company highlighted dissent from numerous institutional shareholders regarding the decision.
Delaware, renowned for its robust legal framework and dedicated corporate court system, has traditionally been a preferred jurisdiction for corporations.
However, Tesla is now proposing to relocate to Texas, citing concerns raised by the Delaware court about its initial 2018 disclosures.
Tesla emphasized that both Musk and his brother Kimbal Musk, a Tesla board member, abstained from discussions on the proposals.
The company defended the move to Texas, asserting that it aligns with Tesla’s ethos of innovation and noted that a significant proportion of S&P 500 companies are not incorporated in Delaware.
Despite acknowledging Delaware’s esteemed legal system, Tesla underscored its commitment to pioneering new approaches, emphasizing this as integral to its success as one of the world’s most valuable companies.
