Most bosses have thwarted attempts to cut wages so far this year.
The question now is whether Tesla CEO Elon Musk can do the same.
Only two of the 340 companies that had shareholders voting on CEO pay as of June 6 had their executive pay packages rejected, according to ISS-Corporate, a separate company from the ISS unit that recommends votes for or against such proposals .
That 0.6% failure rate is lower than any full year since 2020, when payroll rejections ranged from 2% to nearly 5% of all companies that had such votes.
No pay vote in 2024 has attracted more public attention than the June 13 one at Tesla, where shareholders will decide whether the boss can keep a record-breaking $56 billion compensation package awarded in 2018 and then overturned by a Delaware organization this year. right.
Critics say the excessive pay should be voted down as it eclipses last year’s highest U.S. CEO pay by 300 times and would dilute shareholder value. When it was first awarded six years ago, it had the support of 73% of Tesla’s independent shareholders.
Top proxy advisors ISS and Glass Lewis have recommended shareholders vote against the pay package. One major shareholder, billionaire Ron Baron, has called for approval because Musk “deserved his comeuppance.”
Shareholder satisfaction
Musk might take some solace in the fact that many CEOs have managed to keep their compensation benefits intact so far this year, despite some pushback.
This greater shareholder satisfaction with executive compensation is because compensation continues to rise. The average salary for S&P 500 CEOs increased from $14 million in 2022 to $16 million in 2023.
It may seem counterintuitive that support for these say-on-pay proposals is so low in 2024 amid historically high executive pay, says Stephanie Hollinger, vice president of ISS-Corporate.
“One possible explanation is that, unlike the previous two years, when the pandemic caused a shift in traditional compensation practices, fewer issuers provided one-time awards and other discretionary adjustments in 2023,” Hollinger said.
Two companies where CEOs are keeping their pay despite aggressive challenges are money management firm BlackRock (BLK) and pharmaceutical giant AstraZeneca (AZN).
About a third of AstraZeneca shareholders opposed an 11% pay increase combined with performance benefits for CEO Pascal Soriot. Soriot’s compensation, which was set to reach $23.5 million by 2023, has faced opposition in recent years from ISS and Glass Lewis, as well as institutional investors.
At BlackRock the vote was much closer. Only 58% of shareholders voted in favor of compensation for CEO Larry Fink and other executives.
The same wasn’t true for 3M (MMM) or Zebra Technologies (ZBRA), the rare examples of companies that failed to gain enough shareholder support.
At 3M’s annual stakeholder meeting last month, 54% of investors voted down management proposals to increase certain C-suite salaries, including a pay increase for former CEO Mike Roman from $14 million to $16.4 million.
ISS and Glass Lewis also backed that no, citing 3M’s ongoing legal and financial entanglements related to “forever chemicals.”
At Zebra, 60% of investors said no to a pay increase for CEO William Burns.
‘Motivating someone like Elon’
At Tesla, Musk’s supporters are lobbying hard in the last days before the vote on June 13.
Baron, the billionaire investor and prominent Tesla shareholder, wrote in an open letter claiming that Musk’s $56 billion pay package should be approved because of his performance for the company and the appreciation of Tesla’s stock price over the years.
“Elon is the ultimate ‘key man’ of key man risk,” Baron wrote. “Without his relentless drive and uncompromising standards, there would be no Tesla. Especially considering how he slept on the floor of Tesla’s Fremont factory as the company went through what he called ‘production hell!'”
If Musk had failed to meet the escalating revenue and market capitalization requirements of the pay deal, his stock option-based CEO compensation would have been zero.
Baron noted that when Musk’s initial compensation package of stock and stock options was approved by shareholders in March 2018, Tesla’s market capitalization was $53.5 billion.
As of June 4, Tesla’s market cap was $550.75 billion, and in November 2021 it reached a high of $1.24 trillion.
Baron also took aim at the lawyers who successfully sued in Delaware to invalidate Musk’s damages award, noting that they had asked the court to approve $5.6 billion in fees awarded to Tesla shares had been paid for.
“Does anyone honestly believe that the motivation of the plaintiff and its attorneys was to serve the best interests of Tesla and its shareholders?” Baron wrote.
On Friday, Tesla filed court papers arguing that the shareholder’s lawyers should instead receive just $13.6 million in fees.
Tesla’s Chairman Robyn Denholm also made her final pitch to shareholders this past week, asking them in a June 5 letter to think about what it would take to “motivate” Musk.
“If Tesla wants to keep Elon’s attention and motivate him to continue devoting his time, energy, ambition and vision to delivering similar results in the future, we must keep our end of the bargain,” Denholm wrote.
“Motivating someone like Elon requires something different,” she added.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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