Tesla Inc. shareholders are facing a significant decision as a major proxy advisory firm, Glass Lewis & Co., recommends rejecting a proposed $56 billion pay package for Chief Executive Officer Elon Musk. This move poses a substantial challenge to the electric vehicle maker’s board as they prepare for their June 13 annual meeting.
Glass Lewis’s report, released on Saturday, criticizes the “excessive size” of Musk’s pay deal and highlights the dilutive effect it could have upon exercise. The advisory firm points out that Musk’s involvement in numerous time-consuming projects outside Tesla, which has expanded since his high-profile acquisition of the company now known as X, should have been a consideration before the 2018 grant.
The advisory firm’s recommendation could significantly influence large institutional investors’ votes on Musk’s compensation at the upcoming meeting. Should shareholders reject the proposal, it might push Musk to focus more on developing products outside of Tesla, as he has previously threatened.
This upcoming vote marks the second time Musk’s pay package has come before shareholders. Initially crafted in 2018, the remuneration deal was voided earlier this year by a Delaware judge who ruled that investors were not fully informed of critical details. For Tesla’s board, demonstrating continued broad support for the compensation package could strengthen their legal appeal against the ruling. Conversely, a rejection would not only embarrass the board but also signal waning investor confidence in Musk’s leadership. However, it’s important to note that the vote is only advisory, allowing Tesla the option to disregard the outcome.
Historically, about three-quarters of investors backed Musk’s pay deal six years ago despite Glass Lewis recommending its rejection due to its high cost and potential dilution of other shareholders’ equity. Now, Tesla is actively campaigning to garner shareholder support against renewed criticism of Musk’s compensation. Board Chair Robyn Denholm is engaging with large institutional investors, while a “Vote Tesla” website aims to rally the company’s numerous retail shareholders.
Additionally, Tesla shareholders are also set to vote next month on a proposal to move the company’s articles of incorporation from Delaware to Texas. Once again, Glass Lewis has recommended voting against this move. They have also advised voting against the reelection of board member Kimbal Musk, Elon Musk’s brother.
The outcome of these votes will be crucial for Tesla. If Musk’s pay package is supported, it could pave the way for a successful legal appeal and reinforce his leadership position within the company. On the other hand, rejection of the package or the relocation proposal, along with dissent against Kimbal Musk’s reelection, would reflect broader concerns among shareholders about the company’s governance and the CEO’s focus.
Tesla’s campaign to secure votes is thus not only a bid to uphold Musk’s compensation package but also a test of investor confidence in the company’s strategic direction and executive leadership. The upcoming shareholder meeting promises to be a pivotal moment for Tesla, with the potential to shape its future governance and operational focus.
