Elon Musk scores a win — but he’s not out of the woods yet

Musk’s pay plan was initially approved in 2018 but was struck down by a Delaware judge in January after a Tesla shareholder filed a lawsuit alleging the agreement was “beyond the bounds of reasonable judgment.”

Tesla has yet to reveal how many investors voted in favor of the proposal. The company also passed a proposal to move its state of incorporation from Delaware to Texas on Thursday, but that vote to move won’t allow Tesla to sidestep the ruling quite yet. It will still be up to the Delaware courts to decide whether the pay plan can be reinstated.

“The lawsuit in Delaware will continue,” Ann Lipton, a business law professor at Tulane University Law School, told Business Insider. “The new vote was conducted while Tesla was still a Delaware company and is subject to Delaware law — a point that Tesla made in its SEC filings. So, it’s now up to the Delaware courts to determine if the new vote actually does have a ratifying effect.”

Last month, Tesla reassured Delaware Chancellor Kathaleen McCormick in a filing with the Securities and Exchange Commission that it would not attempt to contest the ruling on Musk’s pay elsewhere, for example, in a Texas court.

Lipton added that regardless of how the judge decides to weigh the recent vote, the losing side will likely appeal, dragging the case on further.

Dorothy Lund, a corporate law professor at Columbia University, told BI it could take months for the issue to be resolved, as Tesla must first wait for McCormick to determine the legal fees in the case. But she thinks it’s likely Tesla will appeal the ruling, taking the case to the Delaware Supreme Court.

“Tesla hasn’t officially decided to appeal but all signs are pointing to that,” Lund said. “They have a ways to go before Elon will be paid,” she added.

The case is also likely to spawn additional lawsuits, according to Anat Alon-Beck, a corporate law expert at Case Western Reserve University. Musk has been known to draw a fair share of lawsuits. On Thursday, a group of Tesla shareholders filed a separate lawsuit alleging Musk had been siphoning AI talent to his other company, xAI, instead of Tesla, which has its own AI initiatives.

In January, Delaware Chancellor Kathaleen McCormick ruled to void the pay plan because she said Musk had undue influence over the agreement because of his close relationships with board members.

When the compensation package was voided, it was estimated to be worth around $55 billion — making it the largest pay package ever to be awarded to a CEO.

While Musk does not receive a salary at Tesla, his compensation is determined by Tesla’s performance. It’s structured around 12 tranches of stock options that are vested when Tesla hits specific targets over the course of 10 years. When the company passes each milestone, Musk receives stock equal to 1% of outstanding shares at the time of the grant. Tesla said it hit all 12 targets as of 2023.

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