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Should Elon Musk be paid $56 billion? Tesla shareholders get to vote

It may be the highest-stakes popularity contest in history. 

Friends and foes of tech billionaire Elon Musk are in the middle of a two-month battle over whether to reinstate a record $56 billion pay package for the Tesla CEO, months after a Delaware state judge struck down his compensation as improperly awarded.

The fight is in the form of a shareholder vote: Nearly all owners of Tesla stock, including Wall Street firms and thousands of individual investors, are casting ballots for or against the pay package, voting mostly online ahead of the automaker’s June 13 annual meeting in Austin, Texas.

The question before shareholders: whether to bless a pay package that they originally approved in 2018 but that the Delaware judge deemed illegal under that state’s corporate laws.

The vote is unusual not only because of the fortune that Musk stands to gain — it’s 250 times larger than the median among Musk’s peers, according to the judge who voided it in January — but also because of the public and private jockeying on both sides of the pay vote.

Tesla has bought advertisements and launched a website to try to sway investors to vote for the package — tactics that experts say are unheard of in a debate about a corporate executive’s pay. Some Musk backers are also making online videos and reaching out to potential swing voters one on one, as if it were an election for public office.

But opponents of Musk’s compensation deal are getting organized, too. Several investors released a joint letter this month urging fellow shareholders to vote down the package as excessive.

The vote is a test of investors’ continued faith in Musk, who has become an increasingly polarizing public figure especially because of his extreme views , including on immigration and transgender issues . One of the world’s wealthiest people, he maintains a base of loyal fans.

James Park, a law professor at the University of California, Los Angeles, said investors are likely thinking about an array of factors in deciding whether to reward Musk for his performance as CEO.

“It’ll be partly a popularity contest, but I think the shareholders will also do a hard-nosed rational calculus about whether it’s worth paying this sum to ensure he doesn’t go somewhere else,” he said.

Musk has all but threatened to abandon Tesla if he doesn’t get additional shares in the company. In January, he posted on X that he “would prefer to build products outside of Tesla” if he didn’t have 25% voting control of the company. As of January, he had about 13% of the company, according to CNBC .

Musk’s attention is already divided. He’s also the CEO of rocket company SpaceX, the owner of X and a co-founder of brain science startup Neuralink.

The amount of money at stake is massive even by Musk’s standards. He has a net worth of $191 billion, according to the Bloomberg Billionaires Index , so the package is equal to more than a quarter of his wealth. Musk was never paid the money: By the time the package was voided, he had stock options equivalent to 304 million Tesla shares but had not yet exercised the options to acquire them, according to the Delaware ruling.

Tesla shareholders approved the pay package in 2018, with compensation tied to Tesla’s performance including its market value. There was dissent even then, with 73% of votes in favor compared to a typical 95% approval level for corporate CEO pay, Reuters reported .

To some of Musk’s critics, the vote on whether to reinstate the $56 billion package is a brazen attempt to get around the ruling of Delaware Chancery Court Judge Kathaleen McCormick. She ruled in favor of a handful of Tesla shareholders who argued the pay was unfair in part because the board that approved it was too close to Musk to be entirely independent and shareholders were unaware of all the facts.

“At least as to this transaction, Musk controlled Tesla,” McCormick wrote in her ruling .

The situation is far from a textbook model of how to run a major corporation, said Nadya Malenko, a finance professor at Boston College’s school of management.

“These are not good examples of governance,” she said, pointing to the conflicts and lack of transparency brought to light in the Delaware litigation.

After the Delaware ruling, lawyers for the plaintiff shareholders asked the judge to award what would be a record $6 billion in attorney’s fees for winning the case. The judge hasn’t ruled on that request, and Tesla’s board said in a proxy statement that a fee award may not be warranted if shareholders reapprove the compensation package.

Musk and the board say they plan to appeal McCormick’s ruling, and they’re hoping a second vote will, in effect, override McCormick’s concerns about the pay package. The board is also separately asking shareholders to approve moving Tesla’s state of incorporation to Texas.

But it’s far from clear that a second shareholder vote will pass court muster, said Ann Lipton, a Tulane University law professor. She said even if a majority of shareholders vote “yes,” there will almost certainly be further litigation in Delaware — meaning the case will go on.

“This just hasn’t been done before,” Lipton said, calling the whole matter unprecedented. “This idea of, after a trial, after a finding of a violation of fiduciary duty, to have a vote again — I’m unaware of anything like this happening before.”

From a legal standpoint, Lipton said, corporate boards are supposed to maximize shareholder value, and it’s unclear how the pay package benefits shareholders in a tangible way. The $56 billion would be back pay covering a period since 2018 during which Musk has already done his job, and if it were framed as a bonus or a gift, a court still might rule it unreasonable, she said.

“Gifts are nice. Gifts are fine. But a gift of corporate assets with no corresponding benefit falls into the legal category of ‘waste,’” she wrote in a blog post .

Some of Musk’s supporters say that despite the Delaware ruling, they see the 2018 pay package as a promise that Tesla should follow through on as long as Musk holds up his end of the bargain by meeting the package’s performance goals.

“A deal is a deal,” several investors have posted on Musk’s social media app X, alongside screenshots of confirmation that they voted and the hashtag #VotedTesla24.

The performance requirements set in 2018 were based on three factors: Tesla’s market capitalization, revenue and profitability. Musk has met some of those, growing market capitalization — a measure of the company’s value — from $59.1 billion in 2018 to more than $570 billion this year. And he still has time to meet goals he hasn’t reached, including on revenue, because the pay package had a 10-year term.

In the 440-page proxy statement explaining the vote, a committee of the Tesla board noted the “novel circumstances.” It recommended approval to “avoid further uncertainty regarding Mr. Musk’s compensation and motivation.” The committee wrote that it couldn’t predict the eventual court outcome if some shareholders challenged the vote.

The shareholder voting process is complicated enough that some Musk fans are making how-to videos and posting them on X, Musk’s social media app. Some shareholders can vote on their own online, while others must do so through a broker. One Musk fan, using the handle @TeslaBoomerMama on X, is asking shareholders to fill out a form for assistance if they run into any difficulties voting.

It’s the kind of public and private jockeying that sometimes occurs when there’s a contested election for corporate board seats — as there was this year for the Disney board of directors — but not when the issue is compensation.

So far, most institutional investors aren’t saying how they’re voting. One top-10 shareholder, T. Rowe Price, has expressed some support but stopped short of announcing a vote in favor.

“We do not think it’s fair to set out a new set of options subject to a fresh set of performance hurdles. The requirements of the 2018 package were extraordinarily ambitious — and they were delivered,” the firm wrote in a letter to Tesla’s board, according to the proxy statement.

But T. Rowe Price told Reuters in April that it was premature to say how the company’s funds would vote. The firm didn’t immediately respond to a request for comment Friday.

New York City Comptroller Brad Lander was among the institutional investors signing a joint letter opposed, along with union-owned Amalgamated Bank.

“Shareholders should not pretend that this award has any kind of incentivizing effect — it does not. What it does have is an excessiveness problem, which has been glaringly apparent from the start,” they wrote.

The shareholder votes aren’t public unless an investor shares how they voted. Some people began sharing screenshots of their votes in April, shortly after the Tesla board announced the vote, and the deadline to vote online is June 12. Some people may also vote in person at the annual shareholder meeting June 13. The results are expected at the meeting or shortly afterward.

David Ingram covers tech for NBC News.