Last week, a judge in the US state of Delaware voided the $56 billion compensation package of Tesla Chief Executive Officer Elon Musk. The court, which presides over corporate litigation, sided with a shareholder who claimed that the entrepreneur was overpaid for his services to the company. The ruling shook investors and sent Tesla’s share price down about three percent in after-hours trading following the publication of the 200-page decision.
Chancellor Kathaleen McCormick criticized the process by which the board approved the Musk-sized package. She argued that the compensation committee did not act in the company’s best interests and pointed out the close connections between Musk and critical members of the panel, including one who had been a go-between for him and the committee. McCormick concluded that this was sufficient grounds to deem the agreement a breach of fiduciary duty and a waste of corporate assets.
Since the ruling, Musk has been vocal in his support for shareholders’ rights. In a recent blog post, he asserted that “there are many ways for a public corporation to reward its employees, including stock awards. It’s simply important to balance those rewards with the law’s protections.”
The billionaire also took the opportunity to criticize California, where Tesla is headquartered and which levies some of the highest personal income taxes in the country. In the post, he suggested that Tesla move its headquarters to Texas, home to the company’s new engineering headquarters and where it plans to build its Gigafactory. This would also allow it to take advantage of lower tax rates in a state known for its manufacturing and aerospace industries.
Although some may argue that moving Tesla’s headquarters to another state will not have much effect on the company, it is a sign that the CEO still remembers the lessons of this case. He will likely continue to push for more transparency and accountability in corporate governance and pay practices at the tech industry’s top companies.
In addition to his rant on Twitter, Musk recommended in an email to employees that they should consider incorporating their startups in states with low or no income taxes. In the message, he wrote, “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.” In a separate tweet, he stated that the company had incorporated in Nevada and is considering doing so again in Texas. He encouraged his followers to contact their representatives to let them know that the federal and state governments must “stop wasting taxpayer money on bad government policies.” He added: “It’s time for Silicon Valley to get its own house in order before it destroys itself.” Despite this, it is unclear whether Tesla will move to Texas, which has an unenviable reputation as a place where businesses are forced to relocate because of an anti-business climate.
