Everything You Should Know About the Elon Musk Pay Package Vote

Elon Musk's $55 billion compensation plan, set in 2018, required him to increase Tesla's market value from $59 billion to $650 billion within 10 years. Despite initial struggles and record losses, Tesla exceeded these goals, becoming more valuable than several major automakers combined. Shareholder Richard Tornetta sued in 2018, alleging that Tesla's board breached its fiduciary duty by awarding Musk this plan without proper procedural safeguards, and the Delaware court later agreed, noting Musk's undue influence. The claim argued that because Musk was a controlling shareholder of Tesla, his compensation required stricter judicial review unless negotiated by independent directors and approved by unaffiliated shareholders.

In response, Tesla formed a new committee and is now asking shareholders to ratify Musk's original package with full disclosure. Some scholars argue that retroactive compensation is a waste of corporate assets, but under Delaware law, such claims require showing that the transaction served no corporate purpose or offered inadequate consideration—rarely accepted by courts. Given Musk's significant contributions and Tesla's meteoric rise, it is argued that shareholders, particularly sophisticated institutions, have the business judgment to decide his compensation.

Delaware law aims to protect minority shareholders but also defers to their informed decisions. The ratification of Musk's compensation by shareholders is seen as consistent with this principle, emphasizing their authority in determining executive pay.

• Cathie Wood, a longtime Tesla supporter, stated on X that no executive is as aligned with shareholders as Elon Musk. She noted that Musk has worked without pay since 2018 and argued that current shareholders will benefit from his leadership for another five years or more. Wood, who is the founder, CEO, and chief investment officer of Ark Investment Management, supports Musk's pay package up for a vote next week.

• Adam Jonas, a prominent Tesla supporter and Morgan Stanley autos analyst, wrote on June 4 that if Elon Musk does not secure a 25% voting stake in Tesla, shareholders should expect the company to significantly reduce its investment in advanced AI efforts.

• Billionaire investor Ron Baron, chairman and CEO of Baron Capital, has expressed support for Tesla CEO Elon Musk's $56 billion pay package ahead of the upcoming shareholder vote. In an open letter, Baron urged shareholders to approve the compensation, citing Musk's accomplishments and the significant appreciation of Tesla's stock price over the years.

Tesla shareholders are deeply divided over Elon Musk's leadership and compensation package. Some have strong faith in Musk, believing that his continued leadership and compensation are essential for Tesla's innovation and success. They fear that rejecting the pay package could shake their confidence and potentially lead to Musk stepping down, causing a mass sell-off of Tesla stock.

On the other hand, many shareholders believe Musk is harming Tesla with erratic behavior, lack of new models, and poor sales growth despite price cuts. They worry that granting him more compensation could lead to more shareholders selling their shares, especially if major stakeholders like Leo Koguan decide to pull out.

Regardless of the vote outcome, there's a risk that a significant portion of shareholders could become disillusioned and withdraw their investments, suggesting that Tesla stock might face challenges either way. The passionate debates among shareholders highlight the potential impact of this vote on Musk's future role as CEO.

Additionally, Musk is aiming to increase his control over Tesla to a 25 percent stake to further his goals in developing artificial intelligence and self-driving cars. Currently, he owns about 13 percent of the company, having sold shares to acquire Twitter. On X, he has warned that he may spin off Tesla's AI work into a separate company if his demands are not met.