Following a court ruling in Delaware that deemed Elon Musk’s $56 billion pay package for Tesla unfair, the CEO announced plans to relocate Tesla’s legal home from Delaware to Texas. This decision comes as a response to the ruling requiring the Tesla board to devise a new pay proposal after the judge’s determination of the package’s unfairness.
Elon Musk, the CEO of both Tesla and SpaceX, made the announcement regarding Tesla’s relocation plans shortly after the ruling in Delaware. Musk stated that Tesla would promptly organize a shareholder vote to shift its legal incorporation from Delaware to Texas. This decision stemmed from the court’s verdict on Musk’s compensation package, which was deemed unfair, prompting the need for a new proposal from the Tesla board.
Expressing his sentiment on social media, Musk advised against incorporating companies in Delaware following the court’s decision. Subsequently, he initiated a poll on his social media platform X, inquiring whether Tesla should change its state of incorporation to Texas, where its physical headquarters are located.
The poll garnered substantial engagement, with over 1.1 million votes cast, overwhelmingly in favor of relocating Tesla’s incorporation to Texas. Musk announced the outcome, indicating that Tesla would proceed with holding a shareholder vote to effectuate the transfer of incorporation to Texas.
The ruling issued by Judge Kathaleen McCormick in the Delaware Court of Chancery invalidated Musk’s 2018 compensation package, effectively nullifying it. In her ruling, Judge McCormick emphasized that Tesla failed to substantiate the fairness of the compensation plan, ultimately leading to its rejection.
The compensation plan, originally approved by Tesla shareholders in 2018, comprised 20.3 million stock option awards divided into 12 tranches of 1.69 million shares each. These stock options were designed to vest in 12 increments contingent upon Tesla’s achievement of specific milestones related to market capitalization, revenue, and adjusted earnings, excluding certain one-time charges like stock compensation.
In light of the court’s ruling and the subsequent decision to relocate Tesla’s incorporation to Texas, the future of Tesla’s compensation structure remains uncertain. The board will be tasked with formulating a new pay proposal that aligns with legal requirements and addresses concerns raised by the court regarding fairness.
Overall, Elon Musk’s announcement to shift Tesla’s legal home to Texas reflects his proactive approach to addressing regulatory challenges and underscores the company’s commitment to adaptability and compliance with legal standards.
