In the ultimate ’key man’ risk scenario, the Tesla founder bets on making the price right for staying.
Tesla shareholders will decide on 13 June whether CEO Elon Musk will receive a $56 billion pay deal. The deal would be a reboot of his 2018 pay package that was found to be invalid by a Delaware chancery court judge in January. The judge declared that the contract suffered from governance failures.
Tesla board chair Robyn Denholm sent a letter to Tesla shareholders urging them to pass the pay deal. She claims that the compensation package is necessary to keep Musk’s focus on Tesla, or face him dedicating his energies elsewhere.
Yesses and Nos
The Norwegian Pension Fund, which had voted against the proposed pay in 2018, has issued a statement saying that it would vote against it again this time. The pension fund is Tesla’s 8th largest shareholder. Nordea Asset Management and the City of New York are also shareholders publicly against the package. However, some top-10 investors do support the measure.
Broad board failures
No matter how the vote goes on 13 June, the case brought before the Chancery court, Tornetta v Musk, will have ramifications beyond Tesla. Also, applied properly, it might be possible for an investor to bring another case before the Delaware court before Tesla moves to Texas (if it does). This comes down in part to the due diligence done by the Tesla board.
Global legal solutions provider Dentons pointed out at the time of the Delaware verdict that Tornetta v Musk had important ramifications for corporate law in Delaware. In short, Dentons noted seven critical elements for determining CEO compensation. These elements should be made part of the paper trail at any company. They include:
1. Document the Process and Maintain Adequate Minutes.
2. Conduct a Thorough Analysis, Including an Analysis of Comparables.
3. Clear Rationales Are Essential.
4. Performance Conditions Need To Be Meaningful and Real.
5. Expect Extra Scrutiny of Nominally Independent Directors.
6. Expect Scrutiny of A Dominant Stockholder as a Possible Controller.
7. The Compensation Committee Must Act as an Actual Check on Management’s Compensation Expectations.
Other votes
Tesla will also vote on the 13th on moving its domicile to Texas from Delaware. Furthermore, there is a vote to keep Musk’s brother Kimbal on the board despite detractors’ claims that Elon is stuffing the boar with sycophants and related parties.
