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 company will find out this week at its annual meeting, where it is seeking support for the roughly $50 billion deal.
The package – estimated to be worth 300 times what the highest-earning boss in the US earned last year – was supported by 73% of shareholders who voted six years ago.
The compensation plan gives Musk rights to about 300 million shares — a roughly 10% stake in the company — as a reward for achieving goals once considered laughable, such as growing into a $650 billion company.
But earlier this year, a Delaware judge quashed the deal after a small investor filed a lawsuit, ruling that the amount was “unfair” and that the process for setting the package, by a Musk-dominated board, was “deeply flawed.” used to be.
Rather than backing out, Tesla said it would put the deal to another vote — and seek to reincorporate the company outside Delaware — calling the decision “fundamentally unfair and inconsistent with the will of shareholders.”
Tesla under pressure
Tesla says the targets were ambitious and the compensation is essential to keep the billionaire involved.
“We must stick to our deal,” CEO Robyn Denholm wrote to shareholders this month.
The pay deal, presented to the world six years ago, sparked debate, but few doubted Musk’s importance to Tesla’s future.
This time, however, the fight raises tough questions about his leadership at a time when Tesla’s shares have fallen sharply from their all-time highs and its commanding lead in the electric car industry is under pressure.
Mr Musk has been blamed for alienating potential buyers with controversial political musings 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 no’
“If this had been in 2018, I would have voted yes, but today, after everything that happened, I voted no,” said investor Ven Kolli, a Colorado IT consultant who owns one of the cars from the company and first bought Tesla. shares from almost ten years ago.
While the 42-year-old expects the deal to pass, he hopes a tough vote will send a message to Tesla’s board, which has faced concerns for years that it is not providing sufficient oversight of Musk. He is not concerned about losing Mr. Musk because he believes Tesla has reached a point where it can succeed without him.
“Since the Twitter acquisition, many of the decisions made specifically by Elon Musk have been highly questionable,” he says.
“Ultimately, even though he is CEO, his responsibility is to Tesla and I think the board has lost sight of that,” he says. “This is my chance to make my voice heard, no matter how small it may be.”
Legal experts say it is not clear whether the court will accept the revote, which is not binding, and allow the company to reinstate the pay package. At least one shareholder has already filed a lawsuit against the company’s move.
But Tesla appears to be hoping that a resounding victory will help as the legal battle rages on, said Ann Lipton, a law professor at Tulane University.
“If shareholders overwhelmingly approve the pay package, Musk hopes, and he may be right, that the court will think twice about overturning it again,” she says.
As the vote approaches, Musk and company have pressed their case with a barrage of messages and television appearances, even announcing a lottery for shareholders for a Musk-led tour of the Texas factory.
Musk has stoked the drama on social media, celebrating investors who voted in favor while accusing opponents of being “oath breakers.”
The entrepreneur, who already owns about 13% of the company, has also raised the specter of leaving Tesla unless he gets a bigger stake.
But keeping Musk may be a less compelling argument than it once was, says Steve Westly, founder of the Westly Group, an early Tesla backer.
“Elon is a unique visionary… but I don’t know if that means he’s essential to running any of these companies today,” said Mr. Westly, who no longer owns any shares.
“No one stays at the top forever, especially when you’re trying to run seven companies at the same time.”
‘We believe it should be paid out’
Image source, Getty Images
Those opposed to the deal include shareholder advisory firms ISS and Glass-Lewis, as well as several large government-linked investors, including Norges Bank, which manages Norway’s pension fund and is one of Tesla’s top 10 backers.
Prominent Tesla investors such as Ron Baron and Cathie Wood, as well as established companies such as Scottish Mortgage Investment Trust, are among those voicing their support.
The trust, which owns around 3.1 million shares, said it backed the deal in 2018 because “it introduced extremely far-reaching targets that would make shareholders huge amounts of money if achieved”.
“Because we agreed to that, we believe it should be paid out.”
Executive compensation packages at large companies are typically approved by about 90% of the vote.
While the deal may not meet that threshold, analysts give it a good chance of success, especially if Musk’s efforts to build support among his large public fan base are successful.
‘Making better cars should be the focus’
Image source, Getty Images
Private investors, unlike professional companies, own more than 40% of Tesla’s shares, an unusually high figure that reflects the company’s popular appeal.
Some say their enthusiasm has waned.
“There have been a lot of distractions that have nothing to do with advancing the brand and making better cars, and I think that’s where the focus should be,” said Kheirallah Ashkar, a 28-year-old engineer in Washington, D.C., who invested in the company for the first time in 2020.
“He’s done a fine job, but I don’t think he’s good enough to validate the crazy money they’re asking us to pay.”
But on the eToro stock trading platform, where Tesla has long been one of the most popular stocks, 97% of votes cast were in favor of the plan.
Nearly a third of the approximately 2 million shares held on the platform have voted, an unusually high number.
“We were pleasantly surprised by the level of participation, but I don’t think we were surprised by the direction of the vote,” said 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 outcome of the voting.”