Benzinga - by Shanthi Rexaline, Benzinga Editor.
As Tesla, Inc.’s (NASDAQ:TSLA) shareholders gear up to review and vote again on CEO Elon Musk‘s compensation plan, legal experts suggest the proposal may face significant hurdles.
What happened: Tesla has sought the ratification of its previous plan, which was invalidated by a Delaware Chancery court, noted Ann Lipton, Associate Professor of Business Law and Entrepreneurship at Tulane University Law School, in an interview with CNBC.
“What they’re proposing is to grant Musk $55 billion, though the amount is now lower due to the stock downturn, for his past work. It’s uncertain whether a majority vote of shareholders can even authorize such an action,” she remarked.
Lipton further indicated that the proposal might require unanimous shareholder approval, rather than a simple majority, which considers only the voting members present. That kind of generosity of paying for past work is “unnecessary, could easily be considered waste legally, and therefore can only be approved by a unanimous shareholder vote,” she said.
Drawing an analogy, Lipton likened asking shareholders to approve a compensation package for past work to the company saying, “I want to light my assets on fire without benefit to the company. I just want to do it because it’s fun.”
“Because it’s framed as a payment for work he has already performed, which means that the company doesn’t get any benefit from it,” she said.
.$TSLA says it will ask investors to reinstate @ElonMusk's $56B pay package, but @AnnMLipton thinks it won't be easy: "They don't actually have to pay him for past work," she says. "That kind of generosity that is unnecessary could easily be considered waste, legally." pic.twitter.com/CUM96zN8Wc— Squawk Box (@SquawkCNBC) April 17, 2024
Why It’s Important: The proxy filing introduces a new risk for Tesla, which was already contending with financial underperformance, management dissatisfaction, and strategic missteps.
Wedbush’s Daniel Ives, who maintains an “Outperform” rating on Tesla and a $300 price target, anticipates potential fireworks at the shareholder meeting, given the stock’s lackluster performance this year.
Future Fund‘s Gary Black advocates for shareholder approval of Musk’s compensation plan. “My view is that $TSLA shareholders will overwhelmingly endorse Elon's 2018 comp plan, valued at $47 billion today, even with all the added disclosures. As they should IMO,” he said on X.
In premarket trading on Thursday, Tesla shares inched up 0.26% to $155.86, following declines in each of the past four sessions, according to Benzinga Pro data.
Check out more of Benzinga’s Future Of Mobility coverage by following this link.
Read Next: Tesla Stock Fell Over 9% After Past 4 Earnings Reports: Fund Manager Offers Advice On How Elon Musk Can Break Woeful Streak
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.