image source, Getty Images
- Author, Natalie Sherman
- Role, BBC news
In 2018, Tesla shareholders approved the largest pay package in history for Elon Musk. Will they do it again six years later?
The electric car maker will find out this week at its annual meeting, where it is seeking a show of support for the roughly $50 billion deal.
The package — worth an estimated 300 times what the top-paid U.S. CEO earned last year — won the support of 73% of shareholders who voted six years ago.
The compensation plan gives Mr. Musk rights to about 300 million shares — roughly a 10% stake in the company — as a reward for the company meeting once-ridiculous goals, such as becoming a $650 billion company.
But a Delaware judge struck down the deal earlier this year after a small investor sued, ruling that the amount was “unfair” and the process for determining the package by the board dominated by Mr Musk was “deeply flawed”.
Instead of backing down, Tesla said it would submit the deal to another vote — and seek to re-incorporate the company outside of Delaware — calling the decision “fundamentally unfair and inconsistent with the will of shareholders.”
Tesla under pressure
Tesla says the goals were ambitious and compensation is necessary to keep the billionaire engaged.
“We must stand by our agreement,” board chairwoman Robyn Denholm wrote to shareholders this month.
The pay deal, unveiled to the world six years ago, sparked debate, but few doubted Mr Musk’s importance to Tesla’s future.
But this time, the fight is raising tough questions about his leadership, at a time when Tesla’s shares have plummeted from their highs and its lead in the electric car space is under pressure.
Mr Musk has been accused of antagonizing potential buyers with controversial political views and accused of diverting attention – and resources – to his other companies, including social media site X, formerly Twitter, which he bought in 2022.
‘I voted against’
“If it was 2018, I would have voted yes, but today, after everything that has happened, I voted no,” says investor Ven Kolli, an IT consultant from Colorado who owns one of the company’s cars and is a first-time Tesla buyer. shares almost ten years ago.
Although the 42-year-old expects the deal to pass, he hopes the tough vote will send a message to Tesla’s board, which has faced concerns for years that it is not exercising sufficient oversight of Mr Musk. He is not worried about losing Mr Musk because he believes Tesla has reached a point where it can succeed without him.
“Since the Twitter acquisition closed, a number of decisions made by Elon Musk in particular have been very questionable,” he says.
“At the end of the day, while he’s the CEO, his responsibility is to Tesla, and I think the board has lost sight of that,” he says. “This is my opportunity to make my voice heard, however small.
Legal experts say it is unclear whether the court will accept the new vote, which is not binding, and allow the company to restore the payroll. At least one shareholder has already sued the company’s move.
But Tesla appears to be hoping the resounding victory will help as its legal battle continues, says Ann Lipton, a law professor at Tulane University.
“If shareholders overwhelmingly approve the pay package, then Musk hopes, and he may be right, that the court will think twice about striking it down again,” he says.
With the vote looming, Mr. Musk and the company have pushed their case with a flurry of news and television appearances, even announcing a lottery for shareholders for a Musk-led tour of its Texas factory.
Mr. Musk has stirred up drama on social media, celebrating investors who voted in favor while accusing naysayers of violating their oath of office.
The entrepreneur, who already owns about 13% of the company, has also raised the specter that he will leave Tesla unless he gets a bigger stake.
But Mr. Musk’s retention may be a less compelling argument than it once was, says Steve Westly, founder of the Westly Group, an early backer of Tesla.
“Elon is a unique visionary … but I don’t know if that means he’s necessary to run any or all of these companies today,” says Mr. Westly, who no longer owns stock.
“No one stays at the top forever, especially when you’re trying to run seven companies at once.”
“We believe it should be paid”
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Opponents of the deal include shareholder advisory firms ISS and Glass-Lewis, as well as several major government-affiliated investors, among them Norges Bank, which manages Norway’s pension fund and is one of Tesla’s 10 biggest backers.
Prominent Tesla investors such as Ron Baron and Cathie Wood, as well as established firms such as Scottish Mortgage Investment Trust, are among those expressing support.
The trust, which owns about 3.1 million shares, says it backed the deal in 2018 because it “set out extremely exciting targets that would earn shareholders a huge amount of money if achieved.”
“Having agreed to it, we believe it should be paid.”
Executive compensation packages at large firms are typically approved by around 90% of the vote.
Although the deal may not meet that threshold, analysts give it a good chance of going through, especially if Mr. Musk’s efforts to win support among his large public fan base are successful.
“We will focus on making better cars”
image source, Getty Images
Retail investors, unlike professional firms, own more than 40% of Tesla shares, an unusually high number that reflects the company’s popularity.
Some say their enthusiasm has waned.
“There have been a lot of distractions that aren’t about developing the brand and making better cars, and I feel like that’s what we should focus on,” says Kheirallah Ashkar, a 28-year-old engineer from Washington, DC, who first invested in the firm in 2020.
“He’s done a good job, but I don’t think it’s good enough to warrant the crazy money they’re asking for us.
But on stock trading platform eToro, where Tesla has long been one of the most popular stocks, 97% of the votes cast were in favor of the plan.
Almost a third of the roughly 2 million shares held on the platform were voted, an unusually high figure.
“We were pleasantly surprised by the size of the turnout, but I don’t think we were surprised by the direction of the vote,” says eToro CEO Yoni Assia.
“We have a lot of Tesla fans on eToro and a lot of Elon fans… It will be very interesting to see the voting results.”