What will happen to Tesla CEO Elon Musk's $56 billion pay package?

The results of a Tesla (NASDAQ:TSLA) shareholder vote on whether to reinstate CEO Elon Musk’s $56 billion pay package, which was nullified by a Delaware judge, will be known on Thursday. However, the outcome won’t immediately resolve the issue.

Tesla’s board hopes that shareholder approval will support their case to reinstate the package, but this is uncertain. If shareholders reject the plan, Tesla expects Musk to only accept a comparable package.

Musk’s pay package won’t be automatically reinstated even if shareholders vote yes. Tesla plans to challenge the January ruling by a Delaware Judge, who deemed the package unfair due to insufficient disclosure to shareholders in 2018.

If there is a yes vote, Tesla will argue that current shareholder approval, with full knowledge of past criticisms, validates the package.

Then, if McCormick’s ruling stands, Tesla will appeal to the Delaware Supreme Court, a process that could take months. Tesla is also seeking shareholder approval to move its corporate domicile to Texas but claims it won’t use this to bypass Delaware courts.

On the other hand, if shareholders vote no, Tesla remains committed to compensating Musk, either through the 2018 plan or a new one.

Reversing the decision would be harder without shareholder support. Tesla argues that a new package could cost significantly more due to the rise in its stock value.

The company warns that maintaining the ruling would incur substantial legal fees.

In addition, last week, Tesla board chair Robyn Denholm submitted an open letter urging shareholder approval of Musk’s compensation package.

Denholm stated: “Fairness and respect require that we honor the collective commitment we made to Elon — a commitment that was, and fundamentally still is, about retaining Elon’s attention and motivating him to focus on achieving astonishing growth for our company.” 

Musk’s large stake in Tesla and his long tenure mean many believe it is unlikely he will leave. However, the response remains uncertain.