But with the vote expected to conclude Thursday at the company’s annual shareholder meeting in Austin, the outcome appeared far from certain. Major shareholders are divided over whether Musk, one of the world’s richest men who has at times been an absent-minded executive, deserves such a reward. That means the outcome could hinge on the votes of individual investors, many of whom bought the shares because of Musk’s public image as a generational genius.
The outcome will have significant implications not only for Elon Musk’s fortunes but also for the future of Tesla, which is reeling from weak sales, global competition and mass layoffs. If shareholders deny him the compensation package, Musk has threatened to leave the company and build futuristic technologies elsewhere, including robotics and artificial intelligence. If shareholders approve the plan, Musk would gain more control over Tesla’s board through stock options.
In a letter to investors earlier this month, Tesla Chairman Robyn Denholm urged investors to support Musk because he is “not a typical leader” and motivating him “requires something different “.
“Elon’s unique contributions transformed Tesla from a company that was, in 2018, an ambitious, loss-making company with significant obstacles and challenges to overcome to become what it is today – a company that is literally changing the world. world,” she wrote. “These contributions must be respected.”
But Brad Lander, the New York City comptroller whose office owns about 3.4 million shares of Tesla and invests on behalf of officials, said the plan was unreasonable given Tesla’s struggles and the Musk’s insistence on dividing his attention among an array of businesses, including a new company. artificial intelligence effort called xAI.
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“We need a full-time CEO who is focused on growing the company and delivering great shareholder returns, without getting distracted or chasing shiny new objects,” Lander said.
When a majority of Tesla shareholders approved Musk’s compensation in 2018 – a set of stock options in lieu of salary worth $56 billion at the time – it propelled Musk from the status of eccentric CEO to the richest person in the world, thus fueling his bets on exploring the cosmos, digitizing the human brain and acquiring the “de facto place” of Twitter. But some shareholders sued, saying the procedure was improper.
Earlier this year, a Delaware judge agreed. She threw out the pay package, calling it an “unfathomable sum” — “more than 33 times greater than the plan’s closest comparison, which was Musk’s previous compensation plan” — and noted that it had been approved by a board of directors made up of longtime friends and friends of Musk. former divorce lawyer.
The board is now asking shareholders to reinstate the compensation package, which would increase Musk’s voting power to nearly 25 percent, and allow the company to move its headquarters from Delaware to Texas.
It’s unclear which way the vote will move: while some key investors have pledged to oppose the package, others have remained silent. Vanguard Group, BlackRock and State Street Corp., which collectively own about 17% of Tesla’s shares, have not publicly announced their positions. None responded to requests for comment.
Meanwhile, around 40% of Tesla is owned by non-institutional investors, including retail investors. Many are Musk fans, like billionaire Ron Baron, who called Musk indispensable to Tesla and said his compensation should reflect that fact.
“Our answer is clear, strong and unequivocal: Tesla is better with Elon. Tesla is Elon,” Baron said.
But others have become increasingly disappointed with Musk as the company’s performance falters. “Enough is enough,” said Leo Koguan, one of Tesla’s largest individual shareholders, who added that he would vote against the proposal.
In recent weeks, a coalition of seven large institutional investors, including the New York comptroller and Amalgamated Bank, urged shareholders to vote against the project, citing a “significant governance failure.” Proxy consulting firm ISS called the package excessive despite Tesla’s success, noting that it is unclear whether it will “increase Musk’s focus on Tesla.”
Marcie Frost, CEO of the California Public Employees’ Retirement System, which represents 2.2 million public employees in the state and is one of Tesla’s largest shareholders, said she would also vote against the plan, as she ‘had done in 2018. Frost said the vote against Musk was not “personal”, arguing that his “outsized” compensation could instead be paid to shareholders.
“It’s really important that as a shareholder we get the return on the capital that we allocate to these public companies,” Frost said.
James Park, a professor at UCLA Law School who studies securities regulation and corporate law, said a vote in favor of the proposal would be a “powerful statement” that shareholders want Musk is fully involved in the company and that they “can” I can’t imagine Tesla without him. A no vote, however, would reflect dissatisfaction with Musk’s leadership and the current state of the company.
In Denholm’s letter to investors this month, she noted that Musk had driven growth in the company’s size and profitability over the past six years, and said the ratification of the pay package was ” more important than ever.”
“If Tesla wants to keep Elon’s attention and motivate him to continue to dedicate his time, energy, ambition and vision to produce comparable results in the future, we must honor our agreement,” he said. she writes.
In a January tweet, Musk doubled down on his desire to have more control over the company.
“I am not comfortable making Tesla a leader in AI and robotics without having approximately 25% voting control,” he wrote. “Enough to have influence, but not so much influence that you can’t be overthrown.”
Musk and Tesla did not respond to requests for comment.
A negative vote could slow down AI efforts
This high-profile vote comes at a delicate time for Tesla, which has lost more than 30% of its stock value since the start of the year. In April, the company reported a 55 percent fall in first-quarter profit, larger than expected, due to slowing sales. To ease investor concerns, Musk made big promises about launching a fully autonomous “robot taxi” in August, an ambitious timeline that left many observers skeptical about how he would actually accomplish it.
Park, the UCLA professor, said the current economic environment will play a major role in voters’ choices.
“It may be that a group of retail investors who are very dedicated to Musk are willing to ignore some of these events and not know about them, and they might just vote in favor of the package,” Park said. “And there may be others who are disappointed and disillusioned about Musk.”
If Musk doesn’t get what he wants, Tesla shareholders should expect a significant slowdown in its AI efforts, said Adam Jonas, an analyst at Morgan Stanley.
Some seem willing to take this risk. Nell Minow, vice president of ValueEdge Advisors, said she donated the majority of her Tesla shares to charity after voting “no” on the pay package. As an individual investor, she said she had grown embittered on Musk, calling the company’s corporate governance “catastrophically bad.”
“There is no way you can consider this board to be independent,” Minow said. “If he isn’t sufficiently incentivized by his current holdings, I don’t know if this gigantic sum of money would make a difference.”
Kevin Smith, a software engineer who said he owns only a handful of Tesla shares, added that he was put off by the excessive campaigning by Musk and Tesla, who appear to view the vote as an opportunity to make a profit. statement on the court’s decision. instead of simply focusing on how much Musk should receive.
“It seems to be a symbolic gesture against the court,” Smith said. “So my symbolic vote is no.”
Julian Mark and Aaron Schaffer contributed to this report.