Elon Musk’s $45bn Tesla pay package not a done deal, say legal experts

Elon Musk pictured in April

Elon Musk pictured in April. Appearing in front of shareholders after winning Thursday’s vote, Musk said: ‘I love you guys!’ Photograph: Mario Anzuoni/Reuters

Elon Musk pictured in April. Appearing in front of shareholders after winning Thursday’s vote, Musk said: ‘I love you guys!’ Photograph: Mario Anzuoni/Reuters

Elon Musk’s $45bn Tesla pay package not a done deal, say legal experts

Although shareholders have backed chief executive’s remuneration deal, doubts remain over whether he will be able to access share-based package

Tesla’s battle to reinstate Elon Musk’s $45bn (£35bn) pay package is far from over, according to legal experts, despite shareholders backing the chief executive’s remuneration deal.

Investors in the electric carmaker re-ratified the pay deal on Thursday after it had been struck down by a judge in the US state of Delaware. The company’s chair, Robin Deynholm has already pledged to “put it back in front of the court”.

However, doubts remain over whether Musk will be able to access the share-based package.

The lawyer representing the Tesla shareholder Richard Tornetta, who brought the lawsuit that led to Musk’s pay package being nullified, said in a statement on Thursday that the vote was “deeply flawed”.

“We believe that the ratification vote that Elon demanded and coerced is deeply flawed as a matter of law, legally ineffective and does not impact our case. We will respond to any arguments raised in due course,” said Greg Varallo, a partner at the law firm Bernstein, Litowitz, Berger & Grossmann.

Judge Kathaleen McCormick threw out Musk’s pay package in January, ruling that the board members had been insufficiently independent from the Tesla CEO while negotiating the package.

Ann Lipton, a professor at Tulane law school, said the Tesla vote was “unprecedented” and the litigation around the deal would continue in Delaware, where Tesla was incorporated when the original pay deal was agreed in 2018.

“It’s simply not clear legally what the effect [of the vote] will be,” said Lipton. “Assuming there’s no settlement, the litigation will continue before Chancellor McCormick. Tesla will argue that the new vote cures any defects in the original award and therefore Musk’s pay is reinstated; the plaintiffs will argue it does not.”

Any decision by McCormick is likely to be appealed against by the losing side and will go to the Delaware supreme court, said Lipton. “At that point, the Delaware supreme court will have two issues before it: was McCormick right to strike the package originally? And if so, does the new vote restore the package?”

Eric Talley, a professor at Columbia Law School, said comments by Musk in the run-up to Thursday’s vote could be viewed as coercing shareholders, pointing to Musk threatening in January to build AI and robotics products outside the company if he did not gain enough voting control.

“To the extent Tesla is going to use this vote as a reason to reverse the chancery court’s holding, I’d expect a big argument,” said Talley. “In particular, there is a plausible argument that today’s vote was the product of coercion … and thus not valid.”

A Delaware court is likely to require Tesla to prove that the latest process was carried out independently from Musk and the vote was “procedurally fair”, said Brian Quinn, a professor at Boston College Law School.

“This is an unprecedented situation, so it’s important to keep in mind the pleading burdens are all against the board … this isn’t done, yet,” he said.

Appearing in front of shareholders after winning the vote, Musk said: “I just want to start off by saying, hot damn, I love you guys!”

Thursday’s Tesla shareholder meeting also voted in favour of moving Tesla’s incorporation from Delaware to Texas, where the company is headquartered. However, litigation related to the pay package will remain in Delaware, according to McCormick, who wrote last month that she did not expect Tesla to “litigate any matter related to this action anywhere but Delaware”.

New pay packages for Musk will fall under the law of the company’s new home, however, said Talley. “Now that Tesla is reincorporating to Texas, going-forward decisions would fall under Texas law,” he said.

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