How Tesla Shareholders Upheld Elon Musk’s Sky-High Pay

Tesla shareholders on Thursday voted to reaffirm a roughly $45 billion compensation package for Elon Musk, which was originally approved in 2018 and was nullified by a judge early this year.

The vote, which comes as executive pay continues to rise, amounted to a referendum on a corporate leader whose firebrand personality helped popularize electric vehicles and make Tesla the most valuable auto company. Mr. Musk’s pay package helped him become one of the richest people in the world.

But recently, Tesla has begun to show signs of struggle: Sales and profit have declined, and the company has lost market share as other automakers produce more E.V.s. Tesla’s stock price is less than half of its peak in late 2021.

Thursday’s vote arose from a court case in Delaware, where the company is incorporated, that voided Mr. Musk’s pay package. The judge in that case ruled in January that Mr. Musk had largely dictated the terms of his pay to a board of directors stacked with allies, close friends and his brother, Kimbal Musk.

Many investors contend that Mr. Musk has deserved every penny. The compensation package shareholders approved in 2018 consisted of stock options conditional on ambitious sales and stock price targets that the company easily surpassed.

For Mr. Musk and Tesla, the reason to hold a vote was to show that if shareholders backed the pay package again, the Delaware court could be persuaded to reinstate it. In the end, Mr. Musk easily prevailed, with more than 70 percent of voting shares in favor of the package — an almost identical proportion to the 2018 vote.

Some of the world’s largest sovereign wealth funds and other investor groups argued that Mr. Musk’s compensation is far too large, especially when the company’s bottom line has suffered. The automaker has been accused in recent years of fostering hazardous or discriminatory working conditions, and some investors have suggested that Tesla’s board lacks serious oversight of the company’s operations, including the mercurial Mr. Musk.

Norges Bank Investment Management, which manages Norway’s vast oil wealth and is the world’s largest sovereign fund, said last week that it had voted against the deal. California Public Employees’ Retirement System, or CalPERS, the largest pension fund in the United States, also opposed the pay package.

Tesla is a rare big public company whose shares are heavily owned by mom-and-pop investors, rather than big financial firms, high-net-worth individuals or company insiders.

Some analysts suggested that given Mr. Musk’s fan base, such a large share of so-called retail investors could have helped his case for retaining his compensation package.

The debate about Mr. Musk’s compensation raised questions about the limits of executive compensation and the accountability of Silicon Valley billionaires whose wealth gives them vast influence. In addition to running Tesla, Mr. Musk owns X, the social media company, and SpaceX, the rocket company whose Starlink internet satellites account for much of what orbits space.

Shareholders on Thursday also voted on whether Tesla should reincorporate in Texas, rather than remain in Delaware. That vote also passed.

More than two-thirds of Fortune 500 companies are incorporated in Delaware, according to Bernstein, the research firm, in part because of the state’s well-established legal system for companies. Mr. Musk and Tesla argued that moving to Texas was consistent with its operations: Its largest factory is in Austin, which is where Thursday’s meeting was held.