Generally speaking, most shareholder meetings are fairly calm, low-drama affairs. Even that of Berkshire Hathaway (BRK-B, BRK-A) “Woodstock for capitalists” is lose some of its appeal.
For electric vehicle manufacturer Tesla (TSLA), However, boardroom drama will be displayed in full screen. On Thursday afternoon, from its Giga Austin factory, Tesla will announce the results of shareholder votes on a number of key issues, including the status of CEO Elon Musk’s compensation. Even though Wall Street expects Musk to get his pay package, it won’t come without a fight.
Watch again: Musk’s all-stock pay package, awarded in 2018, was embroiled in controversy and was overturned by a Delaware court earlier this year, with the judge ruling that Tesla’s board did not act “in the best interests” of Tesla shareholders by approving the allocation of $56 billion. Since then, Musk and Tesla’s board of directors, led by Chairman Robyn Denholm, have strongly advocated for Tesla shareholders to approve a new salary package submitted, which is very similar to the original 2018 award invalidated by the judge.
Last week, Denholm submitted an open letter, urging shareholders to approve Musk’s compensation package.
“Fairness and respect demand that we honor the collective commitment we made to Elon – a commitment that was, and fundamentally still is, to keep Elon’s attention and motivate him to focus on achieving astonishing growth for our company”, Denholm wrote in his letter.
Denholm’s choice of words – “get Elon’s attention and motivate him” – raised eyebrows, because most independent board chairs do not typically write open letters urging shareholders to approve compensation packages. of executives, let alone claiming that compensation is necessary to keep the CEO motivated.
“Even though senior management often shows great interest in reducing the company’s other costs, they have no interest in reducing their own salaries. If company directors aren’t actively working to limit CEO pay, then no one is,” Dean Baker, economist and CEO compensation expert. wrote in a research paper published by the nonpartisan Economic Policy Institute.
Even before the 2018 pay package was struck down by the Delaware court, Musk threatened shareholders with his divided attention because he runs or spends significant time at SpaceX, X.com (formerly Twitter) and Boring Co., among others. other companies.
“I’m not comfortable making Tesla a leader in AI and robotics without having 25% voting control. Enough to have influence, but not so much that I can’t be reversed”, Musk said from his X account in January. “If that’s not the case, I would prefer to build products outside of Tesla.”
Case in point: Tesla recently had to deal with reports that Musk ordered Nvidia (NVDA) AI chips for Tesla to be diverted at X.com. Musk defended the movement after the report was released, claiming that Tesla lacked space to use the chips and that they would have otherwise sat in a warehouse.
Musk’s threat to AI and robotics, strange strategic moves and backtrackingand his own plea for his salary package shareholders fear he won’t care as much about Tesla if he doesn’t get what he wants. Denholm even acknowledged as much, saying there are “other places” where Musk could spend 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. He also has no shortage of ideas and “other areas where he can make an incredible difference in the world,” she wrote.
Musk’s supporters have doubled down on the argument that his presence is necessary for Tesla’s future.
“Elon is the ultimate risk guy,” says the billionaire Tesla investor. Ron Baron wrote in an open letter last week. “Without his relentless drive and uncompromising standards, there would be no Tesla.”
“I would say no other leader is as aligned with shareholders as @elonmusk who has committed to paying no salary, no bonus, no stock compensation FOR 10 YEARS unless he has created tremendous value for @Tesla shareholders,” Cathie, founder and CEO of ARK Invest. Drink posted on late last week.
Conversely, proxy advisory firm Glass Lewis urged shareholders to vote against Elon Musk’s compensation, arguing that the “excessive size” of the award and its dilutive effect on existing shareholders were major concerns. ISS, the other major proxy advisory firm, recommended to shareholders also vote against the package.
While a some small groups of shareholders came out against Musk’s wage plan, one big thing came out against Musk this weekend: Norway’s $1.7 trillion sovereign wealth fund.
“We remain concerned about the total award amount, the structure considering performance triggers, dilution and lack of key person risk mitigation,” Norges Bank Investment Management (NBIM) said. the fund operator, declared.
The fund, which also opposed Musk’s wage plan in 2018, has a $5.6 billion stake comprising 31.57 million shares, or 0.99% of all shares outstanding, which actually Tesla’s seventh shareholder, according to Capital IQ. The other major funds that hold the largest stakes in Tesla – Vanguard, BlackRock and State Street, among others – have not commented on Musk’s pay package.
The drama could, however, be much ado about nothing when the votes are counted, with shareholders expected to give Musk what he wants.
“(Musk’s pay package) has been a hot topic of controversy among some investors, but we expect the 2018 package to be overwhelmingly re-approved,” Wedbush analyst Dan Ives predicted in a note to investors at the end of last week.
Although approval of the pay plan will eliminate a “hangover” in Tesla stock, Ives believes Tesla needs Musk more than ever to guide the company through a crucial period.
“Musk must commit that all AI initiatives are under Tesla’s hood and not separated,” 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 shareholder outreach efforts,” Nelson said in a statement to Yahoo Finance, writing that the vote will likely be lower than the 73% approval that the plan received in 2018.
Nelson added: “We have long argued that one of the main reasons the stock trades so high relative to the rest of the industry is Musk’s innovation. If the salary package were to be rejected, it could increase uncertainty regarding the future direction and leadership of the company.
Pras Subramanian is a journalist for Yahoo Finance. You can follow it Twitter and on Instagram.
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