Rachel Levy and Hyunju Jin
(Reuters) – Tesla (NASDAQ:) shareholders’ vote on Thursday to reinstate CEO Elon Musk’s $56 billion pay package, which was rejected by a Delaware judge, will not lead to a quick decision, regardless of the outcome of the vote count.
Tesla’s board hopes shareholder approval will give the electric vehicle maker the legal options it needs to restore the stake, although that is far from certain. The company also said that if shareholders reject the compensation plan, it expects Musk to only accept a pay package similar in size to the one rescinded.
Here’s what we know about the potential results:
WHAT HAPPENS IF SHAREHOLDERS VOTE YES?
The compensation package of the mask is not restored automatically. Tesla said it will seek to overturn a January decision by Delaware Judge Kathleen McCormick (NYSE:) that invalidated the compensation package as unfair to the company’s shareholders.
McCormick found that Tesla shareholders, who voted in 2018 to grant the compensation package, were not fully informed of how beholden many of the directors were to Musk and how that affected compensation negotiations.
Tesla included McCormick’s decision in its update to shareholders ahead of Thursday’s vote and said it plans to argue that a positive result will show shareholders support the package with full understanding of McCormick’s criticism.
Zohar Goshen, a professor at Columbia Law School, said it was unclear whether the move would convince McCormick. “It’s hard to gauge what the court will decide because there’s so much noise surrounding the decision,” Goshen said.
If Tesla can’t convince McCormick to change her decision, which she hasn’t yet taken effect, Tesla plans to appeal to the Delaware Supreme Court, a process that will take many months.
Tesla is also asking shareholders at its annual meeting on Thursday to seek approval to move its corporate domicile to Texas, out of reach of Delaware courts. He said he had no plans to use the move to override McCormick’s decision, and she accepted those assurances.
Tesla could also face more litigation from some shareholders. One of them filed a lawsuit this month challenging an upcoming shareholder vote on Musk’s pay package and location changes.
WHAT HAPPENS IF SHAREHOLDERS VOTE “NO”?
Tesla said it was “determined” to pay Musk for his previous work as part of the 2018 plan or the new plan to ensure he devotes his time and energy to the company.
He could still try to overturn McCormick’s decision in Delaware, but his hand would be weaker if shareholders rejected the package. Given that the appeal could take Tesla outside of next year’s annual shareholder meeting, it could give the board some breathing room before it has to negotiate a new pay package with Musk.
Tesla argues that costs to shareholders will be significantly higher if the pay package is not restored. The company took on $2.3 billion in accounting costs for its 2018 release. To give Musk a new stake with the same economic benefits, it is estimated that the accounting costs he would have to take would be more than $25 billion due to the rise in Tesla shares. since 2018. The new package must be less than 10% of the 2018 plan size to avoid new fees, the statement said.
Tesla also warned that if McCormick’s decision stands, shareholders will pay legal fees. The legal team representing a Tesla investor who challenged Musk’s salary is seeking $5.6 billion in Tesla stock that Musk would have received as royalties, although the company is disputing that request.
WILL TESLA MUSK LOSE IF HE DOESN’T RECEIVE A SALARY?
Board Chairman Robin Denholm said in a regulatory filing last week that restoring the pay package was necessary to “keep Elon’s attention and motivation.”
Skeptics say Musk’s 13% stake in Tesla, worth about $75 billion, which makes up a significant portion of his wealth, and his two decades at the company make it unlikely that Musk will leave. He could also face shareholder lawsuits if he is found to have neglected his duties as CEO.
Samantha Crispin, a corporate lawyer at international law firm Baker Botts, said it would be difficult to predict how Musk, who does not receive a salary from Tesla, would react. “It’s a $56 billion question,” she said.