Facing criticism that it is overly beholden to Elon Musk, Tesla’s board of directors said on Wednesday that it would essentially give him everything he wanted, including the biggest pay package in corporate history.
If setbacks in court and the car market have induced any soul searching among Tesla’s board, there was no sign of it in the latest announcement. If anything, the board doubled down on backing Mr. Musk, Tesla’s chief executive, risking riling up activist investors and more litigation.
The board’s decision to ask shareholders to endorse a compensation plan for Mr. Musk that is worth about $47 billion came less than three months after a Delaware judge voided the same pay package. The judge said that it was excessive and that the company had failed to properly disclose details about it to shareholders who approved it in 2018.
Tesla will now provide shareholders more information about how the plan was devised and ask them to approve it again. That vote will take place as investors are increasingly worried about the electric car company because its sales are declining, and its stock has fallen more than one-third this year. In addition, Mr. Musk has not presented much of a plan to restore the company’s momentum.
Lawyers who represented shareholders in the Delaware case were not immediately available for comment Wednesday on steps they might take. But the board’s action is likely to prompt more lawsuits against the company, which is under legal pressure from regulators, customers and people who say they have been victims of faults in Tesla’s driver-assistance system.
Two days before the move to restore Mr. Musk’s status as one of the world’s richest people, Tesla told employees that it would lay off 10 percent of its work force, or about 14,000 people.
“The optics certainly don’t look good,” said Jason Schloetzer, an associate professor at Georgetown University’s McDonough School of Business who studies corporate governance.
There is no sign that Tesla’s board is trying to exert tighter control over Mr. Musk, whose endorsement of right-wing conspiracy theories has alienated many potential customers. On the contrary, in documents filed Wednesday for a shareholders meeting in June, the board signaled that it stood firmly behind Mr. Musk.
The board asked shareholders to approve moving Tesla’s corporate domicile to Texas from Delaware, a change Mr. Musk called for on the day the Delaware court struck down his pay package in January. And the board asked shareholders to reappoint two directors with close ties to Mr. Musk: the media executive James Murdoch, who has vacationed with Mr. Musk, and Kimbal Musk, his brother.
The company’s moves effectively amounted to a rebuke of the judge who struck down Mr. Musk’s 2018 pay plan, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery. In her ruling, the judge chided the board for lax oversight of Mr. Musk.
“The board and the shareholders were controlled by Musk,” Lynne Vincent, associate professor at Syracuse University’s Whitman School of Management, said of the court decision. “The people who were advocating for this deal were not active protectors of shareholder interests. They were embedded in his personal lives and financial lives.”
By asking shareholders to reinstate Mr. Musk’s compensation, Tesla’s board is trying to render Chancellor McCormick’s decision moot.
“We do not agree with what the Delaware Court decided, and we do not think that what the Delaware Court said is how corporate law should or does work,” Robyn Denholm, the chair of Tesla’s board, said in a message to shareholders Wednesday. The company has separately said it plans to appeal the judge’s decision.
Ms. Denholm said it would be “fundamentally unfair” to deny Mr. Musk compensation that he had been promised. She noted that Tesla had not paid Mr. Musk anything for the past six years besides the compensation plan that was struck down.
But Mr. Musk has earned billions from his Tesla shares. Brian Dunn, a former compensation consultant and visiting lecturer at Cornell University’s School of Industrial and Labor Relations, said pay plans were supposed to provide incentives for executives to perform in the future, not reward them for work in the past.
“There is nothing in the plan that requires him to focus on Tesla,” Mr. Dunn said, noting Mr. Musk’s ownership of X, the social media platform, and ventures like SpaceX. “It’s evidence of the board still being very complacent,” he added.
But some investors found the fairness argument jarring given Tesla’s recent troubles.
“Asking for people to approve one of the largest pay packages of all time, when the company is failing to meet current targets and terminating 10 percent of employees, it’s terrible timing,” said Antoine Argouges, chief executive of Tulipshare, an activist investor group.
Tulipshare has proposed a shareholder vote on whether executive compensation at Tesla should be contingent on meeting standards on carbon emissions and worker rights. Tesla’s board opposes the proposal.
Ms. Denholm framed the decision to leave Delaware as a logical step for a company with a growing presence in Texas, rather than an attempt to escape the state’s justice system. “We have a significant number of manufacturing, operations and engineering employees in Texas, and our executives are based there,” she told shareholders.
She insisted that the board is independent. The board member who assessed Mr. Musk’s compensation plan, Ms. Denholm said, was Kathleen Wilson-Thompson, a former human resources executive at Kellogg and Walgreens who does not appear to have any personal ties to him.
Tesla’s board members are listening to shareholders, the board said in a proxy statement filed on Wednesday. “The board maintains an active, year-round dialogue with our largest stockholders to ensure that Tesla’s board and management understand and consider the issues that matter most to our stockholders,” the statement said.
Ms. Denholm and the board did not respond to statements Mr. Musk made in January that if he wasn’t given control of over 25 percent of the company’s stock he would pursue certain ventures outside Tesla. He currently owns about 13 percent of Tesla’s shares, down from 22 percent after he sold billions of dollars of stock to finance the acquisition of Twitter, now known as X.
But Ms. Vincent of Syracuse University said Tesla had offered little information on how decisions on layoffs and compensation were made. “I don’t think any of this has been transparent,” she said.
Tesla’s board did not address concerns that the company was losing its grip on the market for electric cars. Ms. Denholm presented a rosy view of Tesla’s future.
“Tesla is a nimble organization with an unmatched pace of innovation that has resulted in products and services that surpass all expectations driven by visionary leadership and, most importantly, the best and most dedicated employees in the world,” she said in her message to shareholders.
The decision to fire 10 percent of those employees, she added, was needed to reduce costs, increase productivity and “prepare us for our next phase of growth.”