Approval of the company’s proposal was announced at Tesla’s annual shareholder meeting in Austin, Texas.
The vote followed an intense campaign by the board and Musk to secure shareholder support, and it had become a referendum on Musk’s future at a company he helped build into an electric-vehicle powerhouse.
Tesla’s board had argued that the pay package—representing a sizable portion of Musk’s personal wealth—was needed to motivate him to continue to lead the world’s most valuable automaker long term.
Asking voters to reapprove Musk’s pay package was seen as a gamble for Tesla’s board. The company’s shareholder base has changed since the deal was first approved in 2018, and current holders were being asked to approve pay for past performance, at the same time Tesla was dealing with slowing EV sales and questions about demand for its vehicles.
In a late-night post on X Wednesday, Musk previewed the victory saying the pay-package proposal and another one asking shareholders to move Tesla’s incorporation to Texas were winning by “wide margins.”
The record-setting compensation deal has been criticized for its size and the way it was awarded. A Delaware judge in January ordered the entire plan—now valued at roughly $48 billion—rescinded, saying the process was deeply flawed because of Musk’s close ties to several board members. The court also said Tesla had failed to prove that shareholders had been sufficiently informed about the deal.
Shareholder reapproval Thursday doesn’t override the judge’s decision, but it gives Tesla’s lawyers some leverage in challenging the verdict. Tesla is trying to persuade the Delaware court to reverse the ruling, and it also has vowed to appeal the decision.
Legal experts say the company could petition the judge to reconsider her decision, arguing that the court’s concerns were presented to shareholders and they still backed the package.
In a regulatory filing in April, Tesla said it hoped shareholder ratification would resolve concerns raised by the court, including that Tesla failed to adequately disclose important details of the package to investors.
Musk’s pay package was challenged in 2018 when Tesla shareholder Richard Tornetta sued the company. Tornetta, who owned nine shares in the company, alleged the chief executive controlled the approval process for his own compensation plan and the board had misled shareholders, who then signed off on it.
Lawyers for Tesla and the shareholder are expected to meet in early July with the judge. The vote has also created new legal challenges for Tesla, including one from a shareholder who sued last week, accusing Musk of coercing investors to vote in favor of his compensation deal.
Ahead of the vote, Tesla board chair Robyn Denholm and other directors tried to rally shareholder support, saying that Musk earned his pay by hitting difficult financial targets and that the company ought to honor the terms of a 2018 agreement.
In addition to seeking to win over institutional investors, Tesla reached out to its sizable number of individual shareholders. Individual investors are less likely to cast votes in a shareholder meeting, so Tesla took to social media to encourage them to vote and offered factory tours as an enticement.
About 45% of Tesla’s shareholders are institutional investors, a relatively low percentage compared with the largest companies that make up the top of the S&P 500.
Some prominent shareholders, including Nordea Asset Management and the California Public Employees’ Retirement System, publicly opposed the reapproval.
Two proxy-advisory firms, Institutional Shareholder Services and Glass Lewis, also argued against ratification, saying the compensation plan had failed to ensure that Musk paid more attention to Tesla than his other ventures.
Musk leads other businesses, including rocket maker SpaceX, social-media service X, and an artificial-intelligence startup called xAI that recently raised $6 billion.
Other Tesla stockholders supported the reapproval, such as ARK Investment Management and billionaire investor Ron Baron.
“How can shareholders renege on his pay package AFTER Elon and shareholders already have taken and overcome the risks associated with Tesla’s rise to producing the top selling car in the world?” ARK Chief Executive Cathie Wood wrote in a post on X last week.
The unorthodox pay package doesn’t include a salary and instead compensates Musk with 12 tranches of stock options, each one tied to the company hitting certain performance milestones.
When the package was approved in 2018, the targets appeared ambitious for a company then bleeding cash. In addition to clearing various profit and revenue thresholds, the plan required Musk to boost the company’s market value from a little under $60 billion in 2018 to more than $650 billion.
Since then, Musk has succeeded in transforming Tesla, once a scrappy, unprofitable startup, into the envy of the auto industry with profit margins exceeding those of traditional car companies.
The company hit the last of the performance targets in 2022. While all 12 tranches—totaling 303 million shares—have fully vested, Musk hasn’t exercised any of the options.
Musk has a roughly 13% stake in Tesla, and the shares from the pay package could push it to more than 20%. Musk has said he would like to control 25% of the company as it prepares to invest heavily in its next growth bet, artificial intelligence and self-driving cars.
Denholm argued a shareholder rejection would have resulted in a new, more costly stock-award deal for Musk. The company said issuing the same number of shares to Musk today could result in a $25 billion charge on Tesla’s books, compared with $2.6 billion in 2018, because the shares are valued based on the day they are granted.
Musk has criticized Delaware and its court system in the wake of the ruling and said companies should incorporate in other states.
“If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible,” Musk said in a February post on X announcing that SpaceX had relocated its incorporation to Texas.