Tesla Board Pushes Backdoor Hype For Musk’s Exorbitant Pay Package – CleanTechnica

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At first glance, you might think that the little people continue to be behind Tesla CEO Elon Musk, in spite of his antics, poor decisions, questionable leadership style, fragile temperament, and inability to focus on Tesla. “It’s not much, but I did what I could!” one X user wrote on May 11 about their vote in support of his $56 billion pay package. “The people are with you, @elonmusk!” On a closer examination, however, it’s evident that the Tesla board is pushing the pay package vote behind the scenes in favor of Musk.

It’s not a good look. In fact, a number of investment firms have raised concerns for shareholders about senior leadership at the company, urging shareholders to vote against Musk’s 2018 option award.

On June 13 at Tesla’s annual meeting, investors’ votes on several proposals will be finalized. One proposal is whether to uphold Musk’s 2018 compensation agreement. In January, Musk posted on X that he’s “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” He assured everyone that he wants enough shares to be “influential but not so much that I can’t be overturned.”

Musk’s compensation deal is currently valued at around $46 billion.

A Delaware judge vetoed Musk’s pay package 3 months ago, writing in her opinion that Tesla directors hadn’t looked out for the best interests of investors — the judge criticized Musk’s “extensive ties” with Tesla board members.

The ruling also points to a problem with Tesla — the CEO has his pay determined by the Tesla board, which he effectively dominates. The judge determined that Tesla had failed to disclose the personal and business relationships between Musk and several board members and had presented the board as independent when it was not.

The Atlantic suggests that the Tesla board seems not to have done much negotiating with Musk at all about his compensation. The Pensions & Investments online journal goes so far as to say that the Musk pay package ruling was a victory for shareholders with impact beyond Tesla.

To help lead the drive to placate Musk with his requested compensation, the Tesla board has hired a strategic adviser. The adviser is working with an outside law firm and is assisting Tesla to get a receptive ear of large asset managers, who hold roughly 46% of the company’s shares. In 2018, asset managers held about 70% more shares, according to data compiled by Bloomberg.

One of the moves that the strategic advisor implemented was to create a Vote Tesla website. Its banner reads: Protecting Your Investment and Tesla’s Future. Because the Tesla board created this website with company funds and with full buy-in from the Tesla board, the persuasion they embrace to prompt investors to vote in favor of Musk’s compensation is quite interesting.

(Note: Elon Musk and Kimbal Musk have abstained, according to the site. Shouldn’t the rest of the Tesla board also have abstained?)

With a violet blue background embedded with a Cybertruck and the Tesla logo, the accompanying script says, “Thanks to Elon Musk’s vision and leadership, Tesla has created tremendous value for you, the owners of the Company, all while advancing its mission to accelerate the transition to sustainable energy.”

A video flashes in its first 5 seconds with images of Tesla accomplishments — Gigafactories, robots, the Model 3, the Tesla smartphone app, and a Gigapress. The inference is, without Musk, none of these innovations would have been possible.

A section titled “A CEO Performance Award 100% Aligned with Stockholder Interests: Proposal Four” outlines 6 points for supporting Musk’s pay package.

1. In 2018, stockholders approved a Performance Award that incentivized Elon to create tremendous value for everyone with a stake in Tesla.
2. In under six years, Elon delivered a total shareholder return of nearly 1,100%.*
3. If Elon failed to achieve unprecedented growth targets for Tesla, he would receive ZERO compensation. He did not fail.
4. Elon must hold any shares awarded through stock options for five years after the option is exercised, incentivizing him to continue to drive growth into the future.
5. The ultra-ambitious plan was simple: if stockholders and the Company benefit, so does Elon. Stockholders overwhelmingly voted to approve the plan in 2018.
6. Six years later, a Delaware Court ignored this decision and ordered the plan be cancelled.

Saying “your rights as stockholders need to be protected,” the site talks directly to “you, the owners of the Company. We’re asking you to make your voices heard again and uphold the outcome of your 2018 vote.” The vote on Musk’s compensation requires only a simple majority.

Vote Tesla takes the position that the Court’s decision, if implemented, would deprive Musk of “any compensation for the tremendous accomplishments that have generated significant stockholder returns in less than six years.” The Tesla Board feels that one judge’s opinion should not be able to overturn the decisions of millions of stockholders.

Tesla Board Chair Robyn Denholm supports Musk’s pay, insisting that it “is critical to Tesla’s growth.” Musk has threatened to move his expertise in product development to companies outside of Tesla if he doesn’t get what he wants.

What’s at Stake with the Tesla Board & Musk’s Pay Package

The Tesla board won the 2018 Musk pay vote with 73% of votes cast. Investors have since seen their Tesla portfolios collapse, with the company’s market capitalization at less than $600 billion. Plus a series of top executives have left Tesla in its new focus on autonomous robotaxis instead of more affordable EVs. The stock has fallen 29% so far this year, compared to a 10% gain in the S&P 500.

The SOC Investment Group has written a letter to the SEC that underscores how Tesla continues to struggle with performance, governance, and human capital management, creating legal, financial, and reputational risks for shareholders and the company at large. “The lack of Board oversight,” the coalition argues, “has effectively enabled Musk to use Tesla as a coffer for himself and his other business endeavors, even if these actions come at Tesla’s expense.”

Amalgamated Bank and 6 other investment firms that hold a small portion of Tesla stock concur, saying that Musk is distracted by his commitments to the 5 other companies he controls and isn’t serving the EV maker’s best interests, as reported today by Bloomberg.

Retail investors hold an estimated 42% of shares in the company. Musk currently has a nearly 13% stake in Tesla. Prior to selling TSLA shares to purchase Twitter for $44 billion in late 2022, Musk owned around 22% of Tesla. If the pay package proposal is approved, Musk could nearly double his current holdings in Tesla to about 21%. Musk is the company’s largest investor, with Vanguard and BlackRock next in line.

What happens for Musk and his allegiance to Tesla if the compensation proposal is not approved remains to be seen.