Today, Tesla shareholders will finally answer the $56 billion question hanging over the company: Can CEO Elon Musk keep his record-breaking pay?
While Musk posted late Wednesday night that votes were popular in favor of passing his pay package, official news won’t come out until later in the day – although Tesla shares are jumping in the pre-market.
Securing Musk’s compensation, if it is actually accepted by investors, has not been without its challenges.
To review: Musk’s all-stock compensation package, awarded in 2018, has been mired in controversy and was thrown out by a Delaware court earlier this year, with the judge ruling that Tesla’s board did not act “in the best interests” of Tesla shareholders by to approve the $56 billion allocation.
Since then, the Musk and Tesla board, led by Chairman Robyn Denholm, has advocated quite strongly for Tesla shareholders to approve a newly submitted compensation package, which is very similar to the original 2018 reward that was declared invalid by the judge .
On the eve of those results, Musk and Tesla are being attacked from several fronts.
On Tuesday, the Employees’ Retirement System of Rhode Island (ERSRI) filed another lawsuit in Delaware, accusing Musk and his brother Kimbal Musk of jointly selling $30 billion worth of stock based on inside information. purchase of Twitter (now X), and that two brothers were also aware that Tesla’s vehicle deliveries had fallen below expectations.
Meanwhile, the Wall Street Journal reported that Elon Musk has participated in recent meetings with proxy advisor Glass Lewis and investors including “Vanguard, State Street and BlackRock, in addition to Tesla Chairman Robyn Denholm and others,” to drum up support for Musk’s pay package.
As if that weren’t enough, the Journal also published an exposé late Tuesday night alleging that Musk had numerous inappropriate relationships with employees of SpaceX, the rocket and spaceship company that Musk founded and still serves as CEO.
Then on Wednesday, eight former SpaceX employees separately filed a lawsuit against Musk for sexual harassment and retaliation in California state court, alleging that Musk created an “unwelcome hostile work environment” based on his conduct, among other things.
‘Motivational’ Musk
The ongoing drama surrounding the elections has been going on for weeks. The fight to get Musk’s pay package over was sparked last week when Denholm filed an open letter urging shareholders to approve Musk’s compensation package.
“Honesty and respect require that we fulfill the collective promise we made to Elon – a promise that was, and fundamentally still is, about keeping Elon’s attention and motivating him to focus on achieving amazing growth for our company,” Denholm wrote in her letter.
Denholm’s choice of words – “capture Elon’s attention and motivate him” – raised eyebrows, as most independent board chairs generally do not write open letters urging, let alone claiming, shareholder approval of management compensation packages that the compensation is necessary to keep the CEO motivated.
Even before the 2018 pay package was invalidated by a Delaware court, Musk threatened shareholders with his divided attention because he leads or spends significant amounts of time at SpaceX, X.com (formerly Twitter) and the Boring Co. other companies.
“I feel uncomfortable helping Tesla become a leader in AI and robotics without having 25% voting control. Enough to be influential, but not so much that I can’t be overthrown,” he says. Musk said from his X account in January. “Unless that is the case, I would prefer to build products outside of Tesla.”
An example: Tesla recently faced reports that Musk had ordered AI chips from Nvidia (NVDA) that were intended to redirect Tesla to X.com. Musk defended the move after the report’s publication, claiming Tesla had no space to use the chips, and otherwise they would have sat in a warehouse.
Musk also just withdrew his lawsuit against ChatGPT maker OpenAI ahead of a hearing on Wednesday, without offering an explanation. Musk’s company xAI competes directly with OpenAI, among others.
Musk’s AI and robotics threats, strange strategic moves and pushbacks, and his own advocacy for his pay package have shareholders worried that he won’t care as much about Tesla if he doesn’t get what he wants. Denholm even acknowledged this, claiming that there are “other places where Musk could put his time and energy.
“What we recognized in 2018 and continue to recognize today is that one thing Elon certainly does not have is unlimited time. He also has no shortage of ideas and can make an incredible difference in the world in other places,” she wrote.
Musk’s supporters have doubled down on the argument that his presence is necessary for Tesla’s future.
Former Tesla shareholder Baillie Gifford said it will vote for Musk’s package, according to Bloomberg sources, reasoning that the package was in line with shareholder returns.
“Elon is the ultimate ‘key man’ of key man risk,” billionaire Tesla investor Ron Baron wrote in an open letter last week. “Without his relentless drive and uncompromising standards, there would be no Tesla.”
“I’d say no other director is as aligned with shareholders as @elonmusk, who committed to no salary, no bonus, no stock comp for 10 YEARS unless he created tremendous value for @Tesla shareholders” , says Cathie, founder and CEO of ARK Invest. Wood posted on X late last week.
Conversely, proxy advisory firm Glass Lewis urged shareholders to vote against Musk’s compensation, arguing that the “excessive size” of the pay and its dilutive effect on existing shareholders were major concerns. ISS, the other major proxy advisory firm, recommended that shareholders also vote against the package.
While some smaller shareholder groups came out against Musk’s pay package, one big one weighed in against Musk this weekend: Norway’s $1.7 trillion sovereign wealth fund.
“We remain concerned about the overall size of the reward, the structure given performance triggers, dilution and the lack of mitigation of key person risk,” said Norges Bank Investment Management (NBIM), the fund’s operator.
The fund, which also opposed Musk’s pay package in 2018, has a $5.6 billion stake, consisting of 31.57 million shares, or 0.99% of all outstanding shares, making it the seventh largest, according to Capital IQ is a Tesla shareholder.
And earlier this week, the California State Teachers’ Retirement System (CalSTRS) also said it will vote against Musk’s pay package, with the pension fund’s chief investment officer telling CNBC that the stock awards were “ridiculous.” CalSTRS owns approximately 4.7 million Tesla shares.
Other major funds that own the largest stakes in Tesla – including Vanguard, BlackRock and State Street – have not commented on Musk’s pay package.
However, the drama could be much ado about nothing as the votes are counted, with shareholders expected to give Musk what they want.
“[Musk’s pay package] has been a topic of heated debate among some investors, but we expect the 2018 package to be overwhelming [sic] reapproved,” Wedbush analyst Dan Ives predicted in a note to investors late last week.
While the approval of the pay package will remove an overhang on Tesla shares, Ives believes Tesla needs Musk more than ever to guide the company through a crucial time.
“Musk must commit that all AI initiatives will occur under the hood of Tesla and will not be segregated,” Ives said, reiterating his Outperform rating and $275 price target.
CFRA’s Garrett Nelson believes the vote will be closer than expected.
“It is clear that the Board of Directors has concerns about the vote given its shareholder outreach efforts,” Nelson said in a statement to Yahoo Finance, writing that the vote will likely fall below the 73% approval rating that received the plan in 2018.
Nelson added: “We have long argued that one of the key reasons why stocks trade at such a huge premium to the rest of the sector is Musk’s innovation. If the remuneration package were to be voted down, it could increase uncertainty about the future. future direction and leadership of the company.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow him Tweet and further Instagram.
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