Tesla investors are pushing to drop the largest compensation plan in history.
Set including New York City pension funds have filed notice Monday urged others to vote against Tesla CEO Elon Musk’s $46 billion stock options package at the company’s June 13 shareholder meeting. New York City Comptroller Brad Lander, who serves as an investment advisor to city funds with $260 billion in assets, is organizing the charge.
According to On the letter he signed, Tesla’s board of directors is “overly beholden” to Musk and has not bothered to intervene when Musk ignores Tesla to focus on his roles at The Boring Company, Neuralink, SpaceX, X, and other companies. Investors have complained that Musk divides his time between companies by focusing on one company a day. “The board has not yet confirmed that Tesla has a full-time CEO,” the investors said.
At the same time, he is pulling key talent away from Tesla. “Recently, Musk began bringing in senior engineers from Tesla’s artificial intelligence and autonomy team for his new company, xAI, including Ethan Knight, who was head of Tesla’s computer vision division,” the investor letter said.
The notice has the makings of a showdown next month between some of Tesla’s pension fund investors, who believe they are overpaying for a part-time CEO, and the electric car maker’s base of retail retail investors who see Musk as a visionary leader who should stay on. In Tesla at any cost. At stake is a shareholder vote to ratify Musk’s salary plan, which is now worth about $46 billion, after a judge struck it down in January. Tesla proposed the pay plan for a second time in the spring, and threw its support behind the proposal.
Musk rallied his retail support base with Tweets thanking them To vote and special Tesla ads Promote voting for Musk’s salary plan. Since April 29, Tesla has notified investors 11 separate times that Musk had tweeted about the meeting or that it had updated its voting website, with the title “Protecting Your Investment and Tesla’s Future.”
According to dissident investors, including Amalgamated Bank, AkademikerPension and SOC Investment Group, Musk represents a major risk to stock values because he has pledged part of his 20% stake in Tesla as collateral for the loans. “If Musk is forced to sell his pledged shares, it could result in a significant decline in the stock price to the detriment of shareholders,” the investor letter said.
In addition, the laissez-faire nature of the board means Musk treats Tesla as a “fund” for himself and his other companies, investors say. Musk admitted to using Tesla engineers to work on issues at Investors said these “deviations” played a fundamental role in Tesla’s poor performance compared to the S&P 500, General Motors and Ford.
However, Tesla’s board of directors disagrees. The website created by Tesla to support its vote to certify wages contains voting instructions and other information about the shareholder meeting, including a video with independent Chairman Robyn Denholm. In it, Denholm said Musk’s corporate plan was conceived a decade ago with goals “so far-fetched and so ambitious that skeptics called them laughably impossible.”
“If he fails, Elon will not be entitled to any salary, cash bonuses or stock,” Denholm said. “But if Elon can make it happen, you and all the other shareholders will reap the benefits. The prize has worked.” In half the time, Musk increased revenue from $11.8 billion to $96.8 billion, Denholm said, and turned profitability from $2.2 billion in the red to a $15 billion profit.
In fact, one of the main reasons the vote to ratify Musk’s pay plan was successful in 2018 is that the stakes were markedly different from other CEOs. Tesla’s board was willing to pay Musk $0 if he didn’t meet targets, rather than applying so-called “board discretion,” where company managers still pay CEOs who fail to hit financial benchmarks.
Often, boards tell investors that they do not want to hold CEOs or executives responsible for economic headwinds or other factors outside of their control that contributed to them missing stated financial goals or targets. However, boards must balance the need for recognition with the need to keep CEOs and CEOs in their roles. Only in the extreme case would the CEO receive no pay for a long-term award—in addition to no time-based salary, cash or stock bonus—because the risk of losing the CEO and destabilizing the company would be too high.
What makes Musk’s pay plan complicated is that investors likely see problems ahead for Tesla, while the board appears focused on paying Musk for goals he has achieved in the past. Furthermore, the size of his salary and the fact that Tesla’s performance has struggled this year add to the complexity. The company announced that it would lay off 10% of its employees and even cut back on its summer training program, all while the company devotes its resources to restoring Musk’s success. Musk himself is known to ignore the standards most CEOs of publicly traded companies adhere to, and they appear to act — and tweet — recklessly and without consulting independent directors on the board, which does little to reassure investors.
In addition to ratifying its pay plan, Tesla is seeking investor approval to move from its Delaware foundation to Texas, a change that appears prompted by a Delaware judge’s ruling on Musk’s pay. According to the voting website: “The Delaware court has shown that it will ignore the will of our shareholders. We believe in shareholder rights. We believe Texas courts will respect those rights.”
In addition to mobilizing other investors to vote down Musk’s pay, the breakaway group is asking shareholders to withhold support from Musk’s brother, Kimbal Musk, and former 21st Century Fox CEO James Murdoch. Kimball has served on the board for 20 years, and Murdoch is a friend of Musk. Neither is truly independent, investors said.
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