Glass Lewis, the proxy advisory firm on Saturday urged Tesla shareholders to reject a $56 billion pay package for Chief Executive Officer Elon Musk. Musk compensation, which if passed would be the largest pay package for a CEO in corporate America. The firm’s report cited reasons like the Musk package reject is the “excessive size” of the pay deal, the dilutive effect upon exercise and the concentration of ownership.
It also mentioned Musk’s “slate of extraordinarily time-consuming projects” which have expanded with his high-profile purchase of Twitter, now known as X.
Musk pay reject appeal
Musk’s pay package was proposed by Tesla’s board of directors, which has repeatedly come under fire for its close ties with the CEO billionaire. The package has no salary or cash bonus and sets rewards based on Tesla’s market valuation rising to as much as $650 billion over the 10 years from 2018. The company is currently valued at about $571.6 billion, according to LSEG data.
In January, Judge Kathaleen McCormick of Delaware’s Court of Chancery voided the original pay package. Musk then sought to move Tesla’s state of incorporation to Texas from Delaware.
Proxy advisor appeal
Glass Lewis also criticized the proposed move to Texas as offering “uncertain benefits and additional risk” to shareholders.
The proxy advisor also recommended shareholders vote against the reelection of board member Kimbal Musk, the billionaire’ s brother while former 21st Century Fox CEO James Murdoch re-election was recommended.
Tesla has urged shareholders to reaffirm their approval of the compensation.
Tesla on Musk’s pay package
In an interview this month, Tesla’s board chair Robyn Denholm told the Financial Times that Musk deserves the pay package because the company hit ambitious targets for revenue and its stock price.
Tesla’s growth
Musk became Tesla CEO in 2008. In recent years, he has helped improve results, taking the company to a $15 billion profit from a $2.2 billion loss in 2018 and seven times more vehicles have been produced, according to an online campaign website, Vote Tesla.
Significance of appeal to reject Musk pay package
Glass Lewis’s recommendations are significant because they influence the voting of large institutional investors such as Vanguard, Capital Group, Norges and State Street. All of whom are top 10 shareholders in Tesla and voted against the pay proposal the first time around. Nevertheless, the proposal passed with 73% approval.
Advisory firm appeal outcome
While winning the pay vote would not overturn the court’s decision, the carmaker hopes it will prove investors still back the package six years later and could be decisive in subsequent legal appeals.
If successful, Musk’s stake will jump to more than 20% from 13%. A loss would be symbolically damaging for Denholm and the rest of the board and raise questions about Musk’s future at Tesla. He has threatened to develop future artificial intelligence products elsewhere if he does not gain greater control of the automaker.
Tesla has to persuade thousands of retail investors around the world to vote in favor of the resolutions. They account for about 30% of Tesla shares, an unusually high amount for a listed company, and will be crucial in the outcome.
