Today Tesla shareholders will finally answer a $56 billion question hanging over the company: Can CEO Elon Musk keep his record salary?
While Musk tweeted late Wednesday night that votes were trending to pass his pay package, official word won’t come down until later today — though Tesla shares rose nearly 7% in early trading.
Securing Musk’s compensation, if indeed passed by investors, did not come without a fight.
To review: Musk’s all-stock pay package awarded in 2018 has been mired in controversy and was struck down by a Delaware court earlier this year, with the judge finding that Tesla’s board failed to ” in the best interest” of Tesla shareholders by approving the $56 billion price tag.
Since then, Musk and Tesla’s board, led by chairman Robyn Denholm, have strongly advocated for Tesla shareholders to approve a newly proposed pay package that is very similar to the original 2018 award struck down by the judge. .
On the eve of these results, Musk and Tesla are being attacked from a number of fronts.
Late Tuesday, the Employees’ Retirement System of Rhode Island (ERSRI) filed another lawsuit in Delaware accusing Musk and his brother Kimbal Musk of selling a total of $30 billion in stock using insider information — given that both knew the proceeds would be used to fund Elon. the acquisition of Twitter (now X) and that the two brothers were also aware that Tesla’s vehicle deliveries had fallen short of forecasts.
Meanwhile, the Wall Street Journal reported that Elon Musk has joined recent meetings with proxy adviser Glass Lewis and investors, including “Vanguard, State Street and BlackRock, along with Tesla Chairman Robyn Denholm and others,” to rally support. for Musk’s pay package.
If that wasn’t enough, the Journal also published an exposé late Tuesday alleging that Musk had multiple inappropriate relationships with employees at SpaceX, the rocket and spacecraft company that Musk founded and still serves as CEO.
Then, separately on Wednesday, eight former SpaceX employees filed a sexual harassment and retaliation lawsuit against Musk in California state court, alleging that Musk created an “unwanted hostile work environment” based on his behavior, among the allegations. the other.
Musk ‘motivating’
The ongoing drama surrounding the vote has been building for weeks. The battle to approve Musk’s pay package gained steam last week when Denholm filed an open letter asking shareholders to approve Musk’s compensation package.
“Fairness and respect require that we honor the collective commitment we made to Elon—a commitment that was, and fundamentally still is, to maintaining Elon’s focus and motivation to focus on achieving growth amazing for our company,” Denholm wrote in her letter.
Denholm’s choice of words — “keeping Elon’s attention and motivating him” — raised eyebrows, since most independent board chairmen generally don’t write open letters seeking shareholder approval of management pay packages. let alone claim that compensation is necessary to keep the CEO motivated.
Even before the 2018 pay package was overturned by a Delaware court, Musk threatened shareholders about his divided attention, as he heads or spends significant amounts of time at SpaceX, X.com (formerly Twitter) and Boring Co. other ventures.
“I’m uncomfortable growing Tesla to be a leader in AI and robotics without having 25% voting control. Enough to be influential, but not so much that I can’t be flipped.” Musk said from his X account in January. “If not, I’d rather build products outside of Tesla.”
Case in point: Tesla recently had to deal with reports that Musk ordered Nvidia ( NVDA ) AI chips destined for Tesla to be diverted to X.com. Musk defended the move after the report was released, claiming Tesla lacked the space to use the chips, and otherwise they would have been sitting in a warehouse.
Musk also just withdrew his lawsuit against ChatGPT creator OpenAI before Wednesday’s hearing, giving no explanation for it. Musk’s xAI venture is competing directly with OpenAI, among others.
Musk’s threat of artificial intelligence and robotics, strange strategic moves and reversals, and his defense of his pay package have shareholders worried that he won’t care as much about Tesla if he doesn’t get what he wants. Denholm even admitted as much, claiming there are “other places” Musk could take his time and energy.
“What we recognized in 2018 and continue to recognize today is that one thing Elon certainly does not have is unlimited time. Nor does he face any shortage of ideas and other places where he can make a tremendous difference in the world,” she wrote.
Musk’s supporters have doubled down on the argument that his presence is necessary for Tesla’s future.
Longtime Tesla shareholder Baillie Gifford said she would vote in favor of Musk’s package, according to Bloomberg’s sources, on the grounds that the package was in line with shareholder returns.
“Elon is the last ‘key man’ of key man risk,” billionaire Tesla investor Ron Baron wrote last week in an open letter. “Without his relentless drive and uncompromising standards, there would be no Tesla.”
“I would argue that no other executive is as connected to shareholders as @elonmusk who committed to no salary, no bonus, no stock trade-offs for 10 YEARS unless he created extraordinary value for @Tesla shareholders ,” ARK Invest founder and CEO Cathie. Wood posted on X late last week.
Conversely, proxy advisory firm Glass Lewis urged shareholders to vote against Musk’s compensation, arguing that the “excessive size” of the award and its dilutive effect on existing shareholders were key concerns. ISS, the other major proxy advisory firm, recommended that shareholders also vote against the package.
While several smaller shareholder groups came out against Musk’s pay package, one big one weighed in against Musk over the weekend — Norway’s $1.7 trillion sovereign wealth fund.
“We remain concerned about the total award size, the structure given by the performance factors, the dilution and the lack of key person risk mitigation,” said Norges Bank Investment Management (NBIM), the fund’s operator.
The fund, which also disputed Musk’s 2018 pay package, has a $5.6 billion stake that includes 31.57 million shares, or 0.99% of all outstanding shares, making it Tesla’s seventh-largest shareholder. s, for Capital IQ.
And earlier this week, the California State Teachers Retirement System (CalSTRS) also said it would vote against Musk’s pay package, with the pension fund’s chief investment officer telling CNBC that stock prices were “ridiculous “. CalSTRS owns about 4.7 million Tesla shares.
Other large funds that own the largest shares of Tesla — Vanguard, BlackRock and State Street, among others — have not commented on Musk’s pay package.
The drama may be much ado about nothing when the votes are counted, however, with shareholders expected to give Musk what he wants.
“[Musk’s pay package] has been an area of hot-button contention among some investors, but we’d expect the 2018 pack to be overwhelming [sic] reapproved,” Wedbush analyst Dan Ives predicted in a note to investors late last week.
While the approval of the pay package will remove an “overhang” in Tesla’s stock, Ives believes Tesla needs Musk more than ever to navigate the company through a crucial time.
“Musk needs to commit all AI initiatives will be under Tesla’s hood and not separate,” Ives said, reiterating his Outperform rating and $275 price target.
CFRA’s Garrett Nelson believes the vote will be closer than expected.
“Clearly, the Board is concerned about the vote, given its efforts to reach out to shareholders,” Nelson said in a statement to Yahoo Finance, writing that the vote is likely to fall short of 73% approval. that the plan received in 2018.
Nelson added: “We’ve long argued that one of the main reasons the stock trades at such a massive premium to the rest of the industry is Musk’s innovation. If the pay package were to be voted down, it could increase uncertainty about direction and the future leadership of the company.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow it I tweet and so on Instagram.
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