Investors clash over Elon Musk’s $46 billion pay package: ‘The board still needs to ensure Tesla has a full-time CEO’

A group including New York City pension funds filed a notice Monday urging others to vote against Tesla CEO Elon Musk’s $46 billion stock option package at the company’s June 13 shareholder meeting. New York City Comptroller Brad Lander, who serves as an investment adviser to the city’s funds with $260 billion in assets, is compiling the indictment.

According to the letter he signed, Tesla’s board is “overly beholden” to Musk and has not bothered to intervene when Musk ignores Tesla to focus on his roles at the Boring Company, Neuralink, SpaceX, and other companies. The investors complained that Musk was dividing his time between the companies by focusing on one company per day. “The board still needs to ensure that Tesla has a full-time CEO,” investors said.

In the meantime, he is siphoning important talent away from Tesla. “More recently, Musk has begun poaching top engineers from Tesla’s AI and autonomy team for his new company, xAI, including Ethan Knight, head of computer vision at Tesla,” the investor letter said.

The announcement sets up a showdown next month between some of Tesla’s pension fund investors, who believe they are paying too much for a part-time CEO, and the EV maker’s base of individual retail investors who see Musk as a visionary leader who is here to stay. at Tesla at all costs. At stake is a shareholder vote to ratify Musk’s pay plan, now valued at about $46 billion, after it was struck down by a judge in January. Tesla proposed the pay plan for the second time this spring and has thrown its support behind the proposal.

Musk has rallied support from the retail industry with tweets thanking them for voting and Tesla’s own ads promoting a vote in favor of Musk’s pay plan. Since April 29, Tesla has notified investors 11 times that Musk has tweeted about the meeting or updated its website dedicated to the vote, titled “Protecting Your Investment and Tesla’s Future.”

According to the dissident investors, including Amalgamated Bank, AkademikerPension and SOC Investment Group, Musk represents a significant risk to stock prices because he has pledged part of his 20% stake in Tesla as collateral for loans. “If Musk were ever forced to sell his committed shares, it could lead to a massive drop in the stock price to the detriment of shareholders,” the investor letter said.

Moreover, the hands-off nature of the board means Musk is treating Tesla “like a treasure chest” for himself and his other companies, the investors argue. Musk has admitted to using Tesla engineers to work on problems at the letter. These “distractions” have played a major role in Tesla’s underperformance relative to the S&P 500, General Motors and Ford, investors said.

However, Tesla’s board has different opinions. The website Tesla set up to support the wage ratification vote contains voting instructions and other information about the shareholder meeting, including a video with independent chairman Robyn Denholm. In it, Denholm said Musk’s comp plan was created a decade ago with goals so “far-fetched and so extraordinarily ambitious that skeptics laughingly called them impossible.”

“If he failed, Elon was entitled to no salary, no cash bonuses and no equity,” Denholm said. “But if Elon could pull it off, you and all the other shareholders would reap the benefits. The price worked.” In half the time, Musk grew revenue from $11.8 billion to $96.8 billion, and turned profitability from $2.2 billion in the red to a profit of $15 billion, Denholm said.

One of the main reasons the vote to ratify Musk’s moonshot pay plan succeeded in 2018 was that the stakes were markedly different from those of other CEOs. Tesla’s board was willing to pay Musk $0 if he didn’t meet targets, rather than using what’s known as “board discretion,” where company directors still pay CEOs who have failed to meet financial achieve objectives.

Often, boards tell investors that they do not want to hold CEOs or executives accountable for economic downturns or other factors beyond their control that have contributed to their failure to meet stated financial targets. Although boards must balance the need for discretion with the need to retain executives and CEOs in their roles. Only in the extreme case would a CEO take home no long-term incentive compensation – beyond no salary, cash bonus or time-based stock – because the risk of losing the director and destabilizing the company would be too great.

What complicates Musk’s compensation plan is that investors likely see trouble coming for Tesla, while the board appears focused on paying Musk for the goals he has achieved in the past. Furthermore, the size of his reward and the fact that Tesla’s performance this year has been difficult has added to the complexity. The company announced it would lay off 10% of its workforce and even cut its summer internship program as the company dedicates resources to restoring Musk’s moonshot. Musk himself is ignoring the standards that most CEOs of publicly traded companies adhere to and appears to be acting impulsively – and tweeting – without consulting the independent directors on the board, doing little to reassure investors.

In addition to ratifying its pay plan, Tesla is also seeking approval from investors to move from its Delaware incorporation to Texas, a change that appears to have been prompted by the Delaware judge’s ruling on Musk’s pay. According to the voting website: “The Delaware Court has shown that it will ignore the will of our shareholders. We believe in shareholder rights. We believe the Texas courts will respect these rights.”

In addition to calling on other investors to vote down Musk’s pay, the dissident group is asking shareholders to withhold support for Musk’s brother, Kimbal Musk, and former 21st Century Fox CEO James Murdoch. Kimbal has served on the board for twenty years and Murdoch is Musk’s friend. Neither is truly independent, the investors said.