Tesla (TSLA) shares closed higher on Wednesday, rising about 4% amid reports that the company’s board has formed a special committee to reconsider a new compensation package for CEO Elon Musk. The committee, led by chair Robin Denholm and board member Kathryn Wilson-Thompson, is exploring stock option awards and other forms of compensation, particularly if the Delaware Supreme Court rejects Musk’s 2018 pay deal appeal.
Tesla shares have gained about 25% in the last five trading days, reflecting optimism around the news.
Background: The 2018 Compensation Package Controversy
Musk’s 2018 compensation package, valued at roughly $56 billion if fully exercised, has faced significant legal hurdles. A Delaware court rejected the package early last year, ruling the board did not negotiate in shareholders’ best interests and lacked sufficient evidence of proper negotiation.
The pay deal has sparked intense debate over fairness and corporate governance, especially among major Tesla shareholders.
Shareholders Reapprove Compensation Amid HQ Move
In June, Tesla shareholders reapproved Musk’s compensation agreement, seemingly removing some uncertainty. They also approved relocating Tesla’s headquarters from Connecticut to Austin, Texas, effective 2024.
Despite shareholder approval, a Delaware judge rejected a request to reinstate Musk’s original pay plan in December, and the case is now on appeal.
Stakes for Musk and Tesla’s Future
If the appeal fails, Musk will need a new compensation plan. Musk has publicly expressed frustration at being unpaid in recent years and warned that he “cannot feel comfortable” leading Tesla without owning at least 20% of the company.
He implied that if dissatisfied, he might shift major projects, including artificial intelligence initiatives, to his other ventures like X.com and xAI.
Challenges Beyond Compensation
Musk’s leadership is under scrutiny amid broader challenges:
Tesla’s brand has suffered from Musk’s political positions, including support for President Trump and far-right causes.
Sales have declined in key markets.
The company’s product lineup is aging, and demand is softening, with no affordable electric vehicle offerings currently.
Musk’s ambitious bets on autonomous driving and robotics (e.g., Optimus robot) have yet to yield results.
Following a poor Q1 earnings report, Musk vowed to devote more attention to Tesla, suggesting a recommitment to the company that made him the richest person in the world.
Board Controversies and Governance Concerns
The board itself faces criticism:
Robin Denholm, Tesla board chair since 2014, has sold over $538 million in Tesla shares, raising investor concerns about excessive compensation and corporate governance.
The board recently settled a shareholder lawsuit and paid back millions in compensation.
Denholm publicly denied reports claiming the board was seeking Musk’s successor or pressuring him to appease investors.
Tesla’s ongoing CEO compensation dispute highlights complex tensions between Musk, the board, and shareholders amid a challenging market and regulatory environment. Musk’s demand for significant equity stakes reflects his desire for control and compensation commensurate with his role, while the board must balance governance standards and shareholder interests.
Tesla’s future depends not just on resolving the compensation issue but also on Musk’s ability to address competitive pressures, innovate effectively, and restore brand confidence in a rapidly evolving electric vehicle market.
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