Elon Musk Challenges ‘Oathbreakers’ at Tesla to Secure $56 Billion Compensation Package

The ongoing battle over Tesla CEO Elon Musk’s massive pay package has reached a boiling point. Shareholders of the company will determine the fate of Musk’s compensation package worth an estimated $56 billion on June 13th. This will be the second time shareholders have voted on Musk’s pay, after the initial vote was invalidated earlier this year due to flaws in the approval process. In a bid to secure support for his proposed remuneration, Musk has been actively lobbying shareholders on his social media platform, X. He has also offered private tours of Tesla’s factory in Texas and has vehemently defended the package against those who argue it is excessive.

If approved, Musk’s pay package would make him the highest-paid CEO globally. However, several leading proxy advisory firms have advised shareholders to vote against the proposal, citing concerns about its excessive size and dilutive effect on individual shareholders’ value. Glass Lewis, one of the proxy firms, emphasized the need to address these concerns adequately, as the existing rationale provided by the company is insufficient. Another advisory firm, Institutional Shareholder Services, echoed similar concerns.

Beyond the boardrooms and advisor firms, the vote holds significant implications for Tesla’s future. It will serve as a referendum on Musk’s leadership at a critical juncture for the company. Sales of Tesla’s electric vehicles have been declining due to increased competition from other automakers offering more affordable options. Additionally, Tesla’s vehicle lineup is aging, and the prospects for a cheaper, mass-market electric vehicle remain uncertain. These uncertainties have resulted in Tesla’s stock price dropping nearly 30% since the beginning of the year. Furthermore, the company has laid off tens of thousands of employees, including most of its Supercharger team.

At such a challenging time, Musk is determined to gain more control over Tesla. He argues that he needs to possess at least a 25% ownership stake to steer the company toward a future centered on artificial intelligence and robotics. Currently, Musk holds around 13% of the company after selling billions of dollars of shares to acquire Twitter. Through his social media presence, particularly on X, Musk has even threatened to spin out Tesla’s AI work into a separate company if his demands are not met.

It is worth noting that Musk’s compensation package was initially approved by shareholders in 2018. The package granted him an additional 12% stake in the company over several years, subject to meeting specific benchmarks. These benchmarks included a market valuation of $650 billion, an amount significantly higher than the company’s 2018 value of around $59 billion. Shareholders approved a total of 12 tranches that Musk needed to surpass before receiving the full amount.

In 2021, Tesla briefly achieved a valuation of over $1 trillion following news of a significant order from rental car company Hertz for 100,000 of its vehicles. However, Hertz later decided to offload its Teslas due to high depreciation rates. In 2022, the company surpassed the benchmarks triggering the vesting of the 12th tranche of options granted to Musk, enabling him to collect the $56 billion pay package.

Simultaneously, a lawsuit filed by a shareholder in 2018 has been making its way through the courts. The shareholder, Richard Tornetta, alleged that the board lacked independence from Musk when approving the compensation plan. The board included Musk’s brother, Kimbal Musk, and his friends Antonio Gracias and Steve Jurvetson. Subsequently, Gracias and Jurvetson left Tesla’s board. During the trial, Delaware Chancery Court Judge Kathaleen McCormick criticized Tornetta’s argument against the board’s independence.

On January 30th, McCormick invalidated Musk’s compensation package, ruling that shareholders had not been adequately informed about the proposal’s origins. Tesla is now seeking shareholder approval to re-ratify the same proposal while also requesting support for relocating the company’s state of incorporation from Delaware to Texas and reelecting two board members, James Murdoch and Kimbal Musk.

The impact of the previous proposal’s cancellation and the concerns raised by proxy firms on the voting outcome remains uncertain. Musk exerts significant influence over retail investors in Tesla, and his acquisition of Twitter, later becoming X, has potentially bolstered his sway. Approximately 44% of Tesla’s stock is held by retail investors, the highest percentage among the top 10 companies in the S&P 500. The company is actively rallying support for the pay package through its website, votetesla.com, emphasizing the value growth shareholders have experienced and the potential future value creation at stake.

However, preliminary reports suggest that a significant proportion of Tesla’s shares have already voted, with over 80% in favor of Musk’s proposed compensation package. Whether this trend will persist until the final vote remains to be seen.

In conclusion, the battle for Elon Musk’s enormous pay package at Tesla is reaching a critical juncture as shareholders prepare to cast their votes. Musk’s efforts to secure support through social media and incentives indicate the significance he places on the outcome. The proposal’s rejection by proxy advisory firms and concerns about its excessive size highlight the opposition Musk faces. Beyond the immediate remuneration aspect, the vote will serve as a reflection of stakeholders’ confidence in Musk’s leadership during challenging times for Tesla.



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