Tesla shares are down 28% this year. It has warned of “significantly” slower growth as sales in its second-largest market, China, fall. A defect forced a recall of the highly anticipated latest product. The CEO spends a lot of time at other companies or causes controversy. How do you reward him? With a record-breaking $56 billion wage deal if Tesla gets its way at its annual meeting on Thursday.
Elon Musk’s compensation package – the highest ever awarded to an executive of a US publicly traded company – is not based on Tesla’s current or future performance. It was awarded in 2018 and was built around targets for Tesla’s stock value, revenue and profitability.
The targets seemed high at the time, but after three extraordinary increases – in Tesla’s production, electric car demand and the group’s share price – every target was achieved by 2022. The company’s transformation into the world’s most valued automaker propelled Musk into the ranks of the world’s richest people.
In January, a judge put on the brakes. The Delaware court invalidated the pay plan after a legal challenge by a Tesla shareholder, calling his compensation “an unfathomable amount,” and questioning whether compensating Musk at such a level was necessary to keep him as CEO and achieve the company’s objectives.
Tesla was not prepared to make that decision lightly. “Elon has not been paid over the past six years for his work for Tesla that helped generate significant growth and shareholder value,” Tesla Chairman Robyn Denholm said in April, adding that the ruling had been “fundamentally unfair.” and inconsistent with the will of the shareholders who voted for it.”
The company organized a revote and urged investors to back the deal again. While the automaker has tried to highlight how the settlement was tied to past performance, the vote is also seen by some as a referendum on the current state of the company and Musk’s leadership.
Denholm appealed to shareholders again last week, saying there was a risk that Musk would resign from Tesla if they did not support his pay package this week. “If Tesla wants to keep Elon’s attention and motivate him to continue devoting his time, energy, ambition and vision to delivering similar results in the future, we must keep our end of the bargain,” she wrote.
Denholm added: “This is obviously not about the money. We all know that Elon is one of the richest people in the world, and he would remain so if Tesla were to renege on the commitment we made in 2018.”
Investors are being asked to approve two proposals: Musk’s pay and the relocation of the Tesla company from Delaware to Texas. Musk indicated he planned to do the latter after the January ruling, prompting him to say companies should never incorporate in Delaware.
According to Dan Ives, an analyst at Wedbush and a longtime follower of the company, Tesla will likely win approval for Musk’s pay, albeit “not by a wide margin.” Many of the company’s shareholders “understand that Tesla’s greatest asset is Elon Musk,” Ives said.
The two largest proxy advisory firms – which advise investors on how to vote – have spoken out against Musk’s pay. Glass Lewis and ISS both described it as ‘excessive’, prompting angry reactions from Tesla. Glass Lewis had used “faulty logic”, he claimed, while suggesting that ISS had missed the point.
Aside from the implications for Musk’s wealth, the vote on his pay will also test the power that proxy advisors wield over a company like Tesla, which has a large number of loyal supporters and Musk fans among its shareholders.
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Tesla and Musk have mounted a high-profile campaign to ensure they win. Last month, the billionaire shared a glossy video on It urged investors to “protect Tesla” by voting in favor of the carmaker’s proposals, warning that future growth was at stake.
Musk has received support from some deep-pocketed backers. “Without his relentless drive and uncompromising standards, there would be no Tesla,” billionaire investor Ron Baron said last week.
That urge has earned the tycoon his fair share of critics. Unions are trying to organize at Tesla factories, claiming it’s high time the company’s workers get a fair share of the profits.
He also faces questions about how he divides his time with the rest of his empire, to which X belongs; the rocket and satellite group SpaceX; Neuralink, a brain implant startup; and the Boring Company, a tunnel construction company.
“Tesla will ultimately prevail in the story where if Musk isn’t there, we don’t have the EV [electric vehicle] transformation we have seen globally,” Ives said. “He deserves the pay package: he was executed.
“But it is at a time when Tesla is going through a difficult growth period. There are Category 5 headwinds and Musk has created a lot of buzz and controversy, which has frustrated some investors.”
A win on Thursday is unlikely to end the story. Shareholders opposed to Musk’s pay deal are expected to fight any attempt to reinstate it.