Elon Musk, CEO of Tesla Inc., is at the center of an intense shareholder vote that will determine the fate of his $56 billion pay package. The decision, expected to be finalized today, follows a contentious legal and public battle that has seen Musk and Tesla's board vigorously advocating for the compensation plan. This vote comes at a critical time for Tesla, as it navigates through various operational and financial challenges.
The controversy surrounding Musk's pay package began in 2018 when Tesla's board approved an all-stock compensation deal, which has since been embroiled in legal disputes. Earlier this year, a Delaware court invalidated the package, ruling that Tesla's board did not act "in the best interests" of shareholders. Despite this setback, Musk and Tesla's board, led by Chair Robyn Denholm, have resubmitted a similar compensation plan for shareholder approval.
As the vote approached, Musk and Tesla faced multiple challenges. The Employees' Retirement System of Rhode Island filed a lawsuit in Delaware, accusing Musk and his brother, Kimbal Musk, of insider trading by selling $30 billion in stock to fund Elon's purchase of Twitter (now X). Additionally, the Wall Street Journal reported allegations of Musk's inappropriate relationships with SpaceX employees, further complicating the scenario.
Amidst these allegations, Musk's support network has mobilized. Denholm penned an open letter to shareholders, urging them to approve Musk's pay package to retain his focus on Tesla. "Fairness and respect require that we honor the collective commitment we made to Elon," she wrote. "This commitment was, and still is, about retaining Elon's attention and motivating him to achieve astonishing growth for our company."
However, Denholm's letter raised eyebrows for suggesting that Musk needs financial motivation to stay committed. Critics argue that Musk's divided attention between Tesla, SpaceX, and other ventures like X.com and the Boring Company, might impact his effectiveness as Tesla's CEO.
Musk's interactions with key investors have been intense. He reportedly met with proxy advisor Glass Lewis and major stakeholders, including Vanguard, State Street, and BlackRock, to garner support for the pay package. Despite these efforts, opposition remains strong. Proxy advisory firms Glass Lewis and ISS have recommended shareholders vote against the package, citing concerns over its size and dilutive effect.
Major shareholders like Norway's $1.7 trillion sovereign wealth fund and the California State Teachers' Retirement System (CalSTRS) have publicly opposed the pay package. Norges Bank Investment Management, operator of the Norwegian fund, expressed concerns about the award's size and structure, while CalSTRS labeled the stock awards as "ridiculous."
Despite the controversies, some investors support Musk's compensation plan. Longtime Tesla shareholder Baillie Gifford and billionaire investor Ron Baron have voiced their backing, emphasizing Musk's critical role in Tesla's success. "Elon is the ultimate 'key man' of key man risk," Baron stated. "Without his relentless drive and uncompromising standards, there would be no Tesla."
The debate over Musk's pay is further fueled by Tesla's recent struggles. The company's stock has fallen by more than half from its peak in 2021, and it faces increased competition in the electric vehicle market. Musk's management of Twitter and his controversial actions at SpaceX have also raised questions about his focus and leadership.
In a tweet on Wednesday, Musk announced that shareholder support for his pay package and the company's move to Texas was trending positively. "Both Tesla shareholder resolutions are currently passing by wide margins! Thanks for your support!!," he tweeted, indicating strong backing for the measures.
The stakes are high for Tesla as it awaits the final vote count. If approved, the compensation package could reinvigorate investor confidence and stabilize Tesla's leadership. However, the Delaware court's earlier ruling against the package remains a potential obstacle.
The early market reaction to Musk's tweet was positive, with Tesla shares rising more than 7% in pre-market trading. Analysts like Wedbush's Dan Ives believe that securing Musk's pay package is crucial for Tesla's future. "Musk needs to commit all AI initiatives will be under the Tesla hood and will not be separated," Ives stated, reiterating his Outperform rating for Tesla.
