Image source, Getty Images
- Author, Natalie Sherman
- Role, BBC News
In 2018, Tesla shareholders approved the largest compensation package in history for Elon Musk. Six years later, will they do it again?
The electric car maker will find out this week at its annual meeting, where it seeks to signal support for the roughly $50 billion deal.
The plan – worth an estimated 300 times what America’s highest-paid boss 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 — or about a 10% stake in the company — as a reward for the company meeting goals once considered laughable, like becoming a $650 billion company.
But earlier this year, a Delaware judge struck down the deal after a small investor sued, ruling that the sum was “unfair” and that the process for determining the amount, by a board of administration dominated by Mr. Musk, was “deeply flawed”.
Instead of backing down, Tesla said it would put the deal up for another vote — and seek to reincorporate the company outside of Delaware — calling the decision “fundamentally unfair and inconsistent with the wishes of shareholders.”
Tesla under pressure
Tesla says the goals were ambitious and that compensation is essential to keep the billionaire committed.
“We must live up to our agreement,” board chairwoman Robyn Denholm wrote to shareholders this month.
Introduced to the world six years ago, the pay deal sparked debate, but few doubted Mr. 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 highs and its electric car industry leader is under pressure.
Mr. Musk has been accused of alienating potential buyers with controversial political musings and accused of diverting attention — and resources — to his other companies, including the social media site X, formerly Twitter, which he purchased in 2022.
“I voted no”
“If it was 2018, I would have voted yes, but today, after everything that happened, I voted no,” says investor Ven Kolli, a Colorado IT consultant who owns ‘one of the company’s cars and who first bought Tesla. stock almost ten years ago.
Although the 42-year-old expects the deal to pass, he hopes a tough vote will send a message to Tesla’s board, which has been concerned for years about not having enough oversight on Mr. Musk. He is not worried about losing Mr. Musk, believing that Tesla has reached a point where it can succeed without him.
“Since the Twitter acquisition was finalized, many decisions made specifically by Elon Musk have been very questionable,” he says.
“Ultimately, although he is CEO, his responsibility lies with Tesla and I think the board has lost sight of that,” he says. “This is an opportunity for me to make my voice heard, no matter how small.”
Legal experts say it’s unclear whether the court will accept the new vote, which is non-binding, and allow the company to reinstate the pay package. At least one shareholder has already filed a lawsuit against the company’s decision.
But Tesla appears to be hoping that a resounding victory will help it continue its legal fight, says Ann Lipton, a law professor at Tulane University.
“If shareholders overwhelmingly approve the pay package, then Musk hopes, and perhaps he is right, that the court will think twice before overturning it again,” she says.
As the vote neared, Mr. Musk and the company made their case with a flurry of messages and television appearances, even announcing a shareholder lottery for a Musk-led tour of its Texas factory .
Mr. Musk fueled the drama on social media, celebrating investors who voted for it, while accusing opponents of “oathbreakers.”
The entrepreneur, who already owns about 13% of the company, also raised the specter of leaving Tesla unless he gets a bigger stake.
But keeping Mr. Musk may be a less compelling argument than it once was, said Steve Westly, founder of the Westly Group, an early Tesla supporter.
“Elon is a unique visionary… but I don’t know if that means he’s essential to running any or all of these companies today,” says Mr. Westly, who no longer owns shares.
“No one stays at the top forever, especially when you’re trying to run seven companies at once.”
“We think it should be paid for”
Image source, Getty Images
Opponents of the deal include shareholder advisory firms ISS and Glass-Lewis, as well as several major government-affiliated investors, including Norges Bank, which manages Norway’s pension fund and is one of the 10 largest Tesla 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 around 3.1 million shares, says it backed the deal in 2018 because “it introduced extremely ambitious targets which would bring huge amounts of money to shareholders if met”.
“Having accepted this, we believe this sum should be paid.”
Executive pay at large companies is generally approved by about 90% of the vote.
Even if the deal doesn’t reach that threshold, analysts give it a good chance of closing, especially if Mr. Musk’s efforts to drum up support from his large fan base are successful.
“Making better cars should be the priority”
Image source, Getty Images
Retail 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 moving the brand forward and making better cars and I think that should be the priority,” says Kheirallah Ashkar, a 28-year-old engineer in Washington. DC, which first invested in the company in 2020.
“He’s done a good job but I don’t think he’s good enough to validate the crazy money they’re asking us to give him.”
But on stock trading platform eToro, 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 voted, an unusually high number.
“We were pleasantly surprised by the scale of the turnout but I don’t think we were surprised by the direction of the vote,” said Yoni Assia, chief executive of eToro.
“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.”