Tesla Inc. (TSLA) Board Chair Robyn Denholm has urged shareholders to reapprove a controversial compensation package for CEO Elon Musk, warning that failure to do so could result in Musk shifting his focus away from the electric vehicle giant. In a letter sent to shareholders on Wednesday, Denholm emphasized the necessity of maintaining Musk's motivation through his 2018 pay deal, which a Delaware court nullified earlier this year. Tesla shares dipped slightly following the announcement.
Denholm's letter underscores the critical role Musk plays at Tesla, stating, "If Tesla is to retain Elon's attention and motivate him to continue to devote his time, energy, ambition, and vision to deliver comparable results in the future, we must stand by our deal." She added that the deal, valued at approximately $45 billion, is "obviously not about the money" given Musk's substantial wealth, but rather about providing unique incentives to keep him engaged.
The plea to shareholders comes as voting is underway ahead of Tesla's annual meeting on June 13. This vote not only addresses Musk's compensation package but also a proposal to shift Tesla's state of incorporation from Delaware to Texas. In 2018, Tesla's board secured approval for Musk's pay package with 73% of the vote, and the company is now seeking similar support amidst ongoing debates.
Musk's recent actions have drawn scrutiny, including reports that he redirected Nvidia AI processors intended for Tesla to his social media enterprise, X Corp. Musk has hinted at the need for greater control over Tesla, expressing discomfort with not having sufficient voting power to influence the company's direction. "At 15% or lower, the for/against ratio to override me makes a takeover by dubious interests too easy," Musk stated in January. He currently holds a nearly 13% stake in Tesla, down from around 22% before he sold shares to fund his acquisition of Twitter, now X, for $44 billion in late 2022.
Prominent investors have voiced mixed opinions on Musk's pay package. Billionaire Ron Baron, a long-time Tesla supporter, backs the proposal, while institutional investors like the California Public Employees' Retirement System (CalPERS) and New York City Comptroller Brad Lander oppose it. Lander criticized Musk's divided attention and called for a CEO focused solely on Tesla. "The company needs a full-time CEO dedicated to its growth, not someone chasing shiny new objects," Lander stated.
Tesla's efforts to garner support include a retail-politics-inspired campaign, featuring advertisements and a dedicated website promoting the board's recommendations. Denholm has also been reaching out to large institutional investors to secure their votes.
The stakes are high, as Tesla prepares to report its second-quarter earnings in mid-July. Tesla stock has faced challenges this year, with a 30% decline to date. However, the company saw a rally after its first-quarter earnings report in April, with shares finding support at their 50-day moving average.
Denholm's letter highlights the critical need to retain Musk's leadership, arguing that his vision and drive are essential for Tesla's continued success. "Motivating someone like Elon requires something different," she wrote, emphasizing the non-monetary aspects of his compensation. The package includes provisions that require Musk to hold any shares received upon exercising stock options for five years, incentivizing long-term value creation.
Tesla's annual shareholder meeting on June 13 will be a pivotal moment, determining whether Musk's compensation package is reapproved and if the company can retain its iconic leader's full attention. As Denholm stated, "Every vote matters in ensuring Tesla's future and maintaining the momentum that Elon has built over the years."
