Musk pay victory removes cloud at Tesla, but fresh legal fight looms

Musk is enjoying the backing shown by Tesla shareholders and is trying to allay fears that he would turn his attention to his other companies3. REUTERS/Gonzalo Fuentes/File Photo (REUTERS)
Musk is enjoying the backing shown by Tesla shareholders and is trying to allay fears that he would turn his attention to his other companies3. REUTERS/Gonzalo Fuentes/File Photo (REUTERS)


The vote to approve the multibillion-dollar pay package makes Musk happy and sets the stage for the next round of the court battle.

Tesla shareholders’ backing of Elon Musk’s multibillion-dollar compensation package helps clarify his immediate future atop the world’s most valuable automaker. Now the electric-car company has to figure out how to pay him.

Musk and Tesla face legal opposition to the stock-option deal that was passed in 2018, now valued at roughly $48 billion. The latest vote is also being challenged in court.

The company’s board has argued that shareholder support for the plan would resolve concerns raised by the judge who rescinded the original plan, potentially leading the court to reverse its decision. Legal experts say the vote won’t automatically change the judge’s mind.

For his part, Musk is enjoying the backing shown by Tesla shareholders and is trying to allay fears that he would turn his attention to his other companies—a concern among some shareholders should Musk have lost the vote.

“I just want to start off by saying, ‘Hot damn, I love you guys,’" Musk said at the start of his remarks at Tesla’s annual shareholder meeting in Texas. A percentage breakdown of the voting results wasn’t disclosed Thursday.

Tesla’s shares were little changed in Thursday’s after-hours trading following the vote. Before the vote results, the stock closed up 2.9% as Musk said on X that the vote was passing by a wide margin.

Delaware Chancellor Kathaleen McCormick threw out the original 2018 pay package on concern that Musk had too much influence over the approval process.

Lawyers for Tesla and for Richard Tornetta, the shareholder who filed a lawsuit challenging Musk’s compensation, are due to meet in court in early July. The plaintiff’s lawyers contend that the pay package should be voided because the board breached its fiduciary duties and that shareholders hadn’t been fully informed before the original vote.

Legal experts say a renewed show of support for the deal doesn’t automatically mean the court will change its decision. More legal jockeying is now expected from both sides, but the exact next steps are difficult to predict because the case in itself is unusual.

“At the high level, it is simply not clear at all what effect, if any, the new vote has on the current case," said Ann Lipton, a law professor at Tulane University. “Whichever way you slice it, there are strong arguments why it won’t simply restore the pay package."

McCormick could take a number of actions in response, Lipton said. She could agree with Tesla that the second vote shows strong shareholder support for Musk’s pay and allow the company to reinstate the share deal. She could seek more information about Thursday’s vote. She might also deem the vote irrelevant.

Tesla has said it disagrees with McCormick’s original ruling and plans to appeal, saying the judge ignored material evidence and interpreted the law incorrectly. Procedurally, before Tesla can file an appeal, the two sides must settle the matter of billions of dollars in legal fees for the plaintiff’s attorneys.

Shareholders also voted in favor of a proposal to relocate Tesla’s corporate home from Delaware to Texas, where the company has its headquarters and one of its key factories. The measure had been criticized by the plaintiff in the pay dispute as an attempt to short-circuit the legal process in Delaware. Tesla has denied any intent to avoid a judgment in that state.

Tesla’s board has said the record compensation deal is necessary to keep Musk engaged at the carmaker as it prepares to invest billions of dollars on artificial intelligence and self-driving cars.

“If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal," Tesla Chair Robyn Denholm wrote in a letter to shareholders before the vote.

In a lengthy opinion explaining the decision, McCormick ruled that the size of compensation wasn’t warranted and that Musk’s “superstar CEO" status meant that the board didn’t act independently to arrive at a fair price for shareholders.

If the judge doesn’t overturn her decision, the vote could still be useful to Tesla in an appeal, said Zohar Goshen, a law professor at Columbia University who teaches corporate governance. The company could argue that shareholders’ approval of the pay package twice showed they weren’t being misled by Tesla, Goshen said.

“In this case, there is no question that [Musk] deserves to be paid for six years of work. Shareholders are authorized to decide how much," Goshen said. “You can’t easily say it’s an irrational decision when you have sophisticated investors supporting it."

Several legal experts said the vote complicates Tesla’s legal travails in the short term because it risks spurring new investor challenges.

Last week, another Tesla shareholder, Donald Ball, who owns around 28,000 shares, filed a lawsuit against Tesla, Musk and board members, accusing the Tesla leader of coercing stock owners to support proposals for the pay package and reincorporation in Texas.

The complaint alleged that Musk used strong-arm tactics, such as by saying he might work on artificial intelligence outside Tesla if he didn’t own 25% of the carmaker.

Musk’s focus on his other ventures has been a concern for some Tesla investors as the company’s core business is being hit by slowing sales and cooling demand for electric vehicles.

Those concerns were inflamed recently when Musk confirmed diverting highly sought-after chips from Nvidia used in AI research to X from Tesla. Musk said Tesla had no place to send the Nvidia chips to turn them on, so they would have just sat in a warehouse.

“The idea that he can on a whim just redirect them is just kind of weird," said Jefferies analyst Philippe Houchois.

Mike Colias contributed to this article.

Write to Sean McLain at and Erin Mulvaney at

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