Tesla again asks shareholders to back Elon Musk's $56bn pay package

The compensation was rejected in January by a Delaware judge who called it unfair to investors

The record $56 billion compensation package for Elon Musk was approved in 2018 but rejected by a Delaware judge in January. Reuters

Electric vehicle maker Tesla on Wednesday asked its shareholders to again support chief executive Elon Musk's $56 billion compensation package, initially approved in 2018, after a US judge rejected it earlier this year.

Billionaire businessman Mr Musk's pay was rejected by Kathaleen McCormick, of Delaware's Court of Chancery, in January. The court described the board-approved compensation as an “unfathomable sum” that was not fair to shareholders.

Tesla chairwoman Robyn Denholm said in a regulatory filing on Wednesday that the board stands behind the pay package and does not agree with the Delaware court's decision.

She said it was a matter of “fundamental fairness and respect” to Mr Musk.

“We do not think that what the Delaware court said is how corporate law should or does work. So we are coming to you [stakeholders] now so you can help fix this issue,” Ms Denholm added.

In an emotional appeal in the filling, she said: “You have the chance to reinstate your vote and make it count … we are asking you to make your voice heard.”

The company’s annual meeting is scheduled for June 13.

Mr Musk’s package includes no salary or cash bonus, but he is compensated through stock options based on the company’s market value.

Tesla was trading 1.01 per cent down at $155.52 at 7.35pm UAE time on Wednesday, giving it a market value of $487.22 billion. The company's shares have dropped more than 37 per cent since the start of the year.

Industry experts are not bullish about the company’s growth prospects.

Last week, Philippe Houchois, an analyst at capital markets firm Jefferies, reduced his price target for Tesla stock from $185 to $165, while Piper Sandler analyst Alexander Potter adjusted the firm's target down to $205 from $225.

The hefty pay package required Mr Musk to deliver “transformative and unprecedented” growth and Tesla said he has met all targets associated with it.

On June 5, 2018, Richard Tornetta, a stockholder of the company holding nine shares of common stock at the time, in his individual capacity filed a complaint in the Delaware court alleging breaches of “fiduciary duty, unjust enrichment and waste”.

Mr Tornetta alleged, and the Delaware court held, that Mr Musk controlled the board, leading to an unfair process surrounding the formulation and approval of the 2018 performance award.

“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help [Mr] Musk achieve what he believed would make 'a good future for humanity',” wrote Ms McCormick in her 201-page opinion.

Tesla said the January decision in Mr Tornetta's appeal ignored material evidence presented at trial and the court made “errors of fact and incorrect conclusions of law”.

The company additionally announced its intention to seek shareholders' approval for relocating the company's incorporation from Delaware to Texas.

The statement came close on the heels of the carmaker announcing plans to cut its workforce by more than 10 per cent.

Tesla is aiming to reduce its global staff as it faces declining sales and increased competition in the EV market.

This month, it also reported a nearly 8.5 per cent annual drop in its March quarter deliveries.

The fall in deliveries, the first in four years, was caused by various factors, primarily Houthi rebel strikes in the Red Sea, an arson attack at Tesla's German factory and increased production of the updated Model 3.

The company is expected to report its last quarter’s earnings on April 23.