Tesla asks shareholders to vote again on Musk's $56 billion payout

Elon Musk attends the premiere of ''Lola'' held at the Regency Bruin Theatre in Los Angeles, California, U.S., February 3, 2024.

Tesla said Wednesday it will ask shareholders to reinstate CEO Elon Musk's $56 billion pay package, which a Delaware judge voided earlier this year after ruling that the record-setting compensation deal was "deeply flawed."

Tesla also said it would ask shareholders to approve moving the company's incorporation from Delaware to Texas. Musk had suggested the move after his pay package was ruled illegal. The announcement Wednesday came days after the automaker said it would cut its workforce by 10%.

Tesla said the court decision created a "fundamental problem for the company."

The two proposals are likely to be fiercely controversial. Tesla has hired a proxy solicitor, Innisfree M&A, and plans to spend an undetermined amount, in the millions, to help secure the votes for the two proposals, according to the filing.

Tesla has not hired Innisfree since 2018, when it first asked shareholders to vote on Musk's pay package. Companies often only advertise the cost of proxy solicitations when major proposals or proxy fights are expected. (Innisfree was also suing Musk's Twitter over unpaid bills.)

Musk's pay package was invalidated after a shareholder won a lawsuit against the company earlier this year. Delaware Chancery Court Chancellor Kathaleen McCormick found that Musk, rather than Tesla's board, controlled the company and that the board's compensation committee, rather than negotiating with Musk over the terms of the deal, "worked alongside him, almost as an advisory body."

The Tornetta decision, named after Tesla shareholder Richard Tornetta who brought the suit, prompted Musk to say, "Never incorporate your company in the state of Delaware."

McCormick was also the presiding judge in the legal action compelling Musk to buy Twitter, which he renamed. Tesla, in its Wednesday filing, cast doubt on her decision. "The Company and the Board believe that the decision in Tornetta ignored material evidence presented at trial and that the Delaware Court made errors of fact and incorrect conclusions of law," Tesla said in the proxy filing.

The company also noted that "dozens of institutional stockholders" have told Tesla that they disagree with the Tornetta decision.

Delaware has long been a preferred home for corporations — more than 60% of the Fortune 500 companies are incorporated there — because the state has a robust legal framework and court system dedicated to resolving corporate issues, like executive pay, but also broader contract negotiations.