Tesla Shareholders Advised by Proxy Adviser to Reject Musk’s Pay Package

Tesla Shareholders Advised by Proxy Adviser to Reject Musk’s Pay Package

(Bloomberg) — Tesla Inc. shareholders are being urged by proxy adviser Institutional Shareholder Services to reject Chief Executive Officer Elon Musk’s $56 billion compensation plan, setting up another hurdle for the electric carmaker’s board.

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ISS said the pay package, initially approved by shareholders in 2018, was “outsized from the start” and has failed to meet some of the board’s stated objectives. The opposition comes days after another prominent proxy adviser, Glass Lewis & Co., recommended investors vote down the Musk remuneration plan.

“Some investors may find the board’s argument compelling, that it would be unfair for Musk not to receive the award,” ISS said in the report. “However, the concerns raised, both back in 2018 and in the interim, have not been sufficiently mitigated, particularly given that the board has effectively only offered shareholders an ‘all or nothing’ option in this vote.”

Musk’s compensation has been hotly contested this year. In January, a Delaware judge struck down the pay package, saying the carmaker’s board wasn’t fully transparent with shareholders when they crafted the deal. Directors are asking investors to vote on it a second time at Tesla’s June 13 annual meeting to demonstrate shareholders still back the plan, which could aid in a legal appeal of the decision.

Proxy firms such as ISS often have sway over shareholders, especially large institutions that hold stock in passive funds. However, the proxy adviser and Glass Lewis both recommended shareholders reject the Musk pay deal when it was voted on the first time in 2018. About three-quarters of investors still supported the package.

Tesla subsequently hit back at Glass Lewis’s latest report, saying the adviser omitted key considerations, used faulty logic, and relied on speculation and hypotheticals.

‘Vote Tesla’

The outcome of the shareholder vote is only advisory, though a loss would be a major embarrassment to Tesla’s board and to its top executive. Musk has also threatened to build products outside of Tesla if he can’t increase his equity holdings in the company, something the pay deal would allow him to do.

Tesla’s board has mobilized to try to gain shareholder support for the measure. Tesla board Chair Robyn Denholm has been contacting large institutional investors, and Tesla has published a number of ads on X, formerly Twitter. Directors also hired a strategic adviser who helped set up a “Vote Tesla” website, which argues reinstating the pay package supports shareholders rights.

Additionally, the website urges investors to vote in support of a proposal on moving Tesla’s articles of incorporation to Texas from Delaware. The company already moved its corporate headquarters to Texas in 2021.

In its report, ISS said “cautionary support” for the move is warranted, as it isn’t readily apparent that shareholder rights would be materially harmed by the relocation. However, it acknowledged the request is “outside of the ordinary” and the process undertaken by the board leaves “something to be desired.” There’s also risks given some unknowns in Texas business court practices, it said.

ISS noted that Tesla’s board said it intends to keep any pending litigation currently assigned to a Delaware court, including Musk’s pay case, in the state, regardless of the potential reincorporation results.

The proxy firm recommended voting for the reinstatement of Tesla board member Kimbal Musk, Elon Musk’s brother, but against James Murdoch. Murdoch is a member of Tesla’s audit committee, and ISS noted concerns about the significant number of pledged shares and that the committee couldn’t “effectively oversee risk.”

Both reports followed an open letter, written by a coalition of shareholders that hold a small portion of Tesla’s stock, that argued investors should oppose the pay deal.

–With assistance from Dana Hull.

(Adds further comment from ISS from eighth paragraph.)

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