"For Elon Musk, the Texas gambit seems to have worked-great news for Musk, bad news for shareholders of U.S. companies. At Tesla's annual meeting on Thursday, shareholders voted in favor of giving CEO Musk a gargantuan, record-shattering pay package that could give him stock worth $1 trillion after several years. It's all upside for Musk; under the package's rules he has nothing to lose. But the backstory of how he got there is worrisome."
"Very briefly: In 2018, the Tesla board of directors gave Musk a 10-year pay package that could bring him, if he met certain financial targets over ten years, as much as $55.8 billion-a new record for CEO pay at the time. A Tesla individual shareholder sued Musk and the Tesla board for breaching their fiduciary duties. After years of litigation, a judge in Delaware, where Tesla was incorporated like most big U.S. companies, ruled against Tesla and Musk, invalidating the pay package."
"Other corporations began to fear that Delaware might no longer be the best place to incorporate. In response, Delaware last March passed a law to make the state more alluring, to which Texas quickly counter-punched with an even friendlier law. Key feature: Lawsuits against companies like the suit in Delaware can be initiated only by shareholders who hold at least 3% of the company's shares."
Shareholders approved an unprecedented Tesla CEO pay package that could deliver Elon Musk stock worth up to $1 trillion after several years. The package offers no downside for Musk under its rules, raising corporate governance and shareholder-protection concerns. A 2018 ten-year package that could have paid Musk $55.8 billion was later invalidated by a Delaware judge after a shareholder lawsuit. Delaware and Texas changed corporate laws, with Texas limiting derivative suits to shareholders owning at least 3%, prompting Tesla to reincorporate in Texas and enabling the board to offer the new, record-shattering package.
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