But with the vote set to wrap up Thursday at the company’s annual shareholder meeting in Austin, the outcome seemed far from certain. Major shareholders are divided on whether Musk, one of the world’s richest men who has been a distracted leader at times, deserves such a reward. That means the outcome could depend on the votes of individual investors, many of whom bought the stock because of Musk’s public image as a generational genius.
The outcome will have significant implications not only for Musk’s fortunes but also for the future of Tesla, which has been rocked by weak sales, global competition and mass layoffs. If shareholders reject his compensation package, Musk has threatened to leave the company and build futuristic technologies, including robotics and artificial intelligence, elsewhere. If shareholders approve the package, 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 executive” and his motivation “requires something different.”
“Elon’s unique contributions have built Tesla from what was, in 2018, a loss-making, ambitious company with significant obstacles and challenges to overcome to what it is today – a company that is literally changing the world,” she wrote. “These contributions must be respected.”
But Brad Lander, the New York City comptroller whose office owns about 3.4 million Tesla shares and invests on behalf of public employees, said the package is unreasonable given Tesla’s struggles and Musk’s insistence on divided his attention between a number of companies, including a new one. Artificial intelligence effort called xAI.
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“We need a full-time CEO who is focused on growing the company and producing great shareholder returns, not allowing for distraction or chasing shiny new facilities,” Lander said.
When a majority of Tesla shareholders approved Musk’s compensation in 2018 — a package of stock options in lieu of salary at the time worth $56 billion — it propelled Musk from eccentric CEO to the world’s richest man, prompting betting his to explore the cosmos, digitize the human brain, and win Twitter’s “de facto town square.” But some shareholders sued, claiming the process was irregular.
Earlier this year, a Delaware judge agreed. She tossed out the pay package, calling it “a whopping amount” — “over 33 times the plan’s closest comparison, which was Musk’s previous compensation plan” — and noted that she was approved by a board staffed with Musk’s longtime friends and former divorce attorney.
The board is now asking shareholders to restore the pay package, which would increase Musk’s voting power to roughly 25 percent and authorize the company to move its corporate home from Delaware to Texas.
It’s unclear which way the vote will swing: While some major investors have vowed to oppose the package, others have remained silent. Vanguard Group, BlackRock and State Street Corp., which together own about 17 percent of Tesla’s stock, have not publicly stated their positions. None responded to requests for comment.
Meanwhile, about 40 percent of Tesla is held by non-institutional investors, including individual retail investors. Many are Musk fans, like billionaire Ron Baron, who called Musk indispensable to Tesla and said his compensation should recognize that fact.
“Our answer is clear, loud and unequivocal: Tesla is better off with Elon. “Tesla is Elon,” said Baron.
But others have grown increasingly disillusioned with Musk as the company’s performance has declined. “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 major institutional investors, including NYC Comptroller and Amalgamated Bank, have urged shareholders to vote against the package, citing a “material governance failure.” Proxy advisory firm ISS called the package excessive despite Tesla’s success, noting it is unclear 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 among Tesla’s largest shareholders, said she too will vote against the package, as she did in 2018. Frost said the vote against Musk was not “personal,” arguing that his “huge” compensation could go to shareholders.
“It’s really important that as a shareholder we get the return on capital that we’re allocating to these public companies,” Frost said.
James Park, a professor at the UCLA School of Law who studies securities regulation and corporate law, said a vote in favor of the proposal would be a “powerful statement” that shareholders want Musk to be involved. integral to the company and they “can” Don’t imagine Tesla without it.” However, a no vote 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 has driven growth in the company’s size and profitability over the past six years, and said ratifying the pay package is “more important than ever.”
“If Tesla wants to keep Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our agreement,” she wrote. .
In a post in January, Musk doubled down on his desire for more control over the company.
“I’m embarrassed by growing Tesla to be a leader in AI and robotics without having ~25% voting control,” he wrote. “Enough to be influential, but not so much that I can’t be overthrown.”
Musk and Tesla did not respond to requests for comment.
A no vote could slow down AI efforts
The high-profile vote comes at a difficult time for Tesla, which has lost more than 30 percent of its stock value since the start of the year. In April, the company reported a larger-than-expected 55 percent drop in first-quarter profit due to slowing sales. To assuage investor concerns, Musk has made lofty promises of launching a fully autonomous “robotaxis” in August, an ambitious timeline that had many observers skeptical of how he would actually achieve it.
Park, the UCLA professor, said the current economic backdrop will play heavily into voters’ choices.
“There may be a group of retail investors who are very committed to Musk who are willing to overlook some of these events and may not know about them and they may just vote in favor of the package,” Park said. “And there may be others who are disappointed and may be disappointed in Musk.”
If Musk doesn’t get his way, Tesla shareholders should brace for a significant slowdown in its AI efforts, said Adam Jonas, an analyst at Morgan Stanley.
Some seem willing to take that risk. Nell Minow, vice president of ValueEdge Advisors, said she donated most of her Tesla stock to charity after voting “no” on the pay package. As an individual investor, she said she exasperated Musk, calling the company’s corporate governance “catastrophically bad.”
“There’s no way you can consider this board independent,” Minow said. “If he doesn’t have enough leverage from his current holdings, then I don’t know if this huge amount of money would make a difference.”
Kevin Smith, a software engineer who said he owns only a handful of Tesla shares, added that he has been excluded from the overzealous campaign by Musk and Tesla, who appear to see the vote as a chance to a statement about the court’s decision. rather than simply focusing on how much money Musk should be paid.
“It seems to be a symbolic gesture against the court,” Smith said. “So my token vote is no.”
Julian Mark and Aaron Schaffer contributed to this report.