Tesla finds itself at the center of a contentious debate as shareholders prepare to vote on CEO Elon Musk’s substantial $56 billion pay package. This vote, set for Thursday, June 13, is drawing significant attention, not least because of its implications for Tesla’s leadership and corporate direction.
Background of Musk’s Pay Package
Originally approved in 2018, the pay package has been a point of contention due to its size and structure, which includes performance triggers and potential dilution effects. Norway’s $1.7 trillion sovereign wealth fund, a major shareholder and Tesla’s eighth largest according to LSEG data, has voiced its concerns. “We remain concerned about the total size of the award, the structure given performance triggers, dilution, and lack of mitigation of key-person risk,” stated Norges Bank Investment Management, the fund’s operator. Despite appreciating the value Musk has brought to Tesla since 2018, the fund plans to vote against the package, repeating its 2018 stance.
Musk’s Response and Shareholder Dynamics
In reaction to the opposition, Elon Musk expressed his frustration on X, formerly known as Twitter, stating, “Yeah, this is not cool.” He argues that public sentiment and a majority of retail shareholders support the compensation plan. “So far, roughly 90% of retail shareholders who have voted have voted in favor of both resolutions. The public sentiment is unequivocally supportive,” Musk posted.
Legal and Advisory Challenges
The proposal’s journey has not been smooth. Delaware Chancery Court Judge Kathaleen McCormick earlier rejected the package, criticizing it as an “unfathomable sum” and stating that Musk and Tesla’s board failed to demonstrate its fairness. Following this, Musk suggested companies should avoid incorporating in Delaware. Furthermore, advisory firms ISS and Glass Lewis have recommended against the package, citing its failure to meet board objectives set in 2018.
Implications for Tesla’s Future
Tesla Chairwoman Robyn Denholm has been vocal about the necessity of the package to retain Musk’s focus on Tesla. “This is obviously not about the money,” Denholm wrote to investors. She emphasized the importance of Musk’s vision in transforming Tesla from a “loss-making, ambitious company” in 2018 to a pioneering force in sustainable transportation.
Market Reactions and Analyst Perspectives
The controversy over Musk’s compensation package comes amid a challenging time for Tesla, with the company’s stock showing a significant downturn and quarterly deliveries missing expectations. Analysts from Bernstein expressed skepticism about the package passing the shareholder vote, highlighting the potential negative impact on the stock should the compensation be rejected and Musk potentially depart from his role.
Looking Ahead: A Pivotal Moment for Tesla
As the vote approaches, the outcome remains uncertain, with significant implications for Tesla’s governance and its iconic leader’s future with the company. The decision will not only reflect shareholder confidence in Musk’s leadership but also set a precedent for executive compensation in an era where corporate governance and accountability are under increasing scrutiny.
