A Delaware judge overturned Tesla CEO Elon Musk’s pay package earlier this year, and a second shareholder advisory firm has spoken out against its reinstatement.
Late Thursday, ISS joined Glass Lewis in recommending against the package, which the business recently valued at $44.9 billion but had a value of around $56 billion as of January.
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Tesla’s shareholders are voting on the package, and the company’s annual meeting on June 13 will announce the results.
When shareholders authorized Musk’s stock-based package in 2018, ISS stated in its recommendations on Tesla’s proxy voting items that it was excessive and failed to meet board objectives at the time.
The firm stated that Tesla met the pay package’s performance objectives and acknowledged the company’s significant rise in size and profitability. However, in 2018, ISS raised concerns about Musk’s excessive focus on other businesses, which remain unaddressed.
“The grant, in many ways, failed to achieve the board’s other original objectives of focusing CEO Musk on the interests of Tesla shareholders, as opposed to other business endeavors, and aligning his financial interests more closely with those of Tesla stockholders,” stated ISS.
Future issues remain unanswered, including a lack of transparency about Musk’s future income and the risk that his salary would significantly impair shareholder value, according to ISS.
Musk is heavily involved in his other ventures, including SpaceX, Neuralink, and the Boring Company. Last year, he acquired the social media network X and established the artificial intelligence unit xAI.
Last Monday, Glass Lewis, another well-known proxy consulting company, advised against reinstating Musk’s 2018 remuneration package. The firm stated that the package will reduce shareholder value by approximately 8.7%. Glass Lewis concluded that the package’s rationale “does not, in our view, adequately consider dilution and its long-term effects on disinterested shareholders.”
However, in a proxy statement, Tesla said that Glass Lewis overlooked the fact that Musk’s 2018 reward pushed him to create more than $735 billion in value for shareholders in the six years since its approval.
“Tesla is one of the most successful enterprises of our time,” according to the petition. “We have revolutionized the automotive market and become the first vertically integrated sustainable energy company.”
Tesla is dealing with declining global sales, sluggish electric vehicle demand, an older model lineup, and a stock price that has fallen around 30% this year.
After a Delaware judge invalidated Musk’s pay deal earlier this year, Tesla requested shareholders restore it. Tesla also requested the relocation of the company’s legal headquarters to Texas at that time.
Glass Lewis advised against transferring the legal corporate headquarters to Texas, but ISS stated that it supported the relocation.
California’s public employee retirement fund, which owns a stake in Tesla, said it has not decided how it will vote on Musk’s compensation. However, CEO Marcie Frost told CNBC that, as of Wednesday, the system had not voted in favor. CalPERS, which opposed the package in 2018, stated that it will discuss the topic with Tesla “in the coming days.”
Delaware Chancellor Kathaleen St. Jude McCormick ruled in January that Musk is not entitled to the historic stock award that was to be distributed over a ten-year period.
Ruling on a shareholder case, she overturned the pay package, claiming that Musk basically controlled the board, making the remuneration process unfair to stakeholders. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf,” she noted in her ruling.
In a statement to shareholders published in a regulatory filing last month, Tesla Chairwoman Robyn Denholm stated that Musk has delivered on the automaker’s growth expectations, with Tesla meeting all of the stock value and operational benchmarks in the 2018 package. Since the pay package began, shares have risen 571%.
Denholm stated in a letter that Elon has not received payment for any of his work for Tesla over the past six years, which has contributed significantly to growth and stockholder value, because the Delaware Court second-guessed your decision. “That strikes us—aand the many stockholders from whom we already have heard—aas fundamentally unfair and inconsistent with the will of the stockholders who voted for it.”
Tesla reported record deliveries of more than 1.8 million electric vehicles worldwide in 2023, but the value of its stock has fallen sharply this year as EV sales have slowed.
The business said it shipped 386,810 automobiles from January to March, about 9% fewer than the same period last year. Future growth is uncertain, and convincing shareholders to support a large pay package in an era of growing global competition may be difficult.
Starting last year, Tesla reduced costs on some models by up to $20,000. The price reductions caused used electric vehicle prices to fall, reducing Tesla’s profit margins.
In April, Tesla said that it was laying off around 10% of its workforce, or 14,000 individuals.
