Tesla is Moving to Texas
In response to Delaware courts rescinding Tesla CEO Elon Musk’s pay package in late January, it appears as though Tesla is taking its cars and going home - to Texas.
Following the case, Musk immediately took to social media and began posting about moving Tesla’s incorporation filings from Delaware to Texas - making typically harsh statements that made it clear he wasn’t pleased with the ruling.
The decision came after almost a year in this legal dispute with Tesla shareholder Richard Tornetta - who claimed that Musk’s executive pay package which was put in place back in 2018 - and now was valued at $55.8 billion - was too excessive, and would have been put to better use as value for the shareholders themselves.
Obviously the Judge Kathaleen McCormick ended up agreeing with Mr. Tornetta, saying that the amount of compensation that Musk was due as a result of this package was,
“[...] the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude [...]”
Now we’re not going to pretend that we know better than a Judge in a state known for being very friendly to corporations, but there are some parts of this issue that don’t seem so clear.
For instance, when the plan was implemented, it was valued at $2.6 billion, and shareholders at the time agreed that Musk would only get the package if certain goals - called “tranches” in these sorts of documents - were met by the end of the next decade.
These milestones include things like raising the company’s market cap value by $50 billion - and he has reportedly hit all of the 12 tranches he needed to in order to receive his payment package - all while receiving no salary from Tesla itself.
And that sort of high risk, high reward plan has paid off for Musk - with the exception of this lost court case. It’s no wonder he’s mad, really.
Compensation packages like this one don’t even offer actual money either - the compensation in this case being market share, and the option to buy more at a reduced cost. This is the transfer of assets, not actual money changing hands.
So again, even though we’re not legal experts - it certainly seems like the ruling in this case is conflating Musk getting 55 billion dollars, with 55 billion dollars IN VALUE as it relates to the car company he’s spent the last decade or so building up. His package is only worth that amount of money at all because the company is worth far more - meaning Tesla shareholders have also seen their value grow.
Tesla is now readying to hold a vote with the shareholders about re-incorporating in Texas - where the company’s physical headquarters already stands. And this might be a decision made in anger on Musk’s part, but it’s hard to blame him here.
They’ll lose out on some of the benefits that come with being incorporated in Delaware - namely the corporate-friendly environment and tax benefits - but if the courts there aren’t friendly enough to let Musk keep his compensation package anyhow, it makes sense that he wouldn’t want to keep his company there.