The influential proxy advisory firm Glass Lewis has recommended that Tesla shareholders reject CEO Elon Musk‘s proposed $56 billion pay package in the upcoming annual shareholder’s meeting. This massive pay package, which was originally proposed in 2018, would be the largest-ever compensation for a corporate chief executive and would make Musk strong holder of the company.
However, Glass Lewis raised several concerns regarding the size and structure of this proposed compensation deal. While the bill was passed in the year 2018, it was put on hold by the court because of various issues. Now, the pay package is about to be released and the current Tesla shareholders will be able to vote if the bill should be released or not.
Glass Lewis Criticizes “Excessive Size” of Proposed Compensation
Glass Lewis cited the “excessive size” of the proposed pay package as one of the key reasons for its recommendation. At approximately $56 billion, this package would be worth around 12 times more than the previous record for the highest CEO pay worth $484 million.
Additionally, the pay package sets targets based on Tesla’s market value potentially reaching as high as $650 billion over the next 10 years from 2018. However, Tesla’s current market value is about $571.6 billion, only around 12% lower than the target.
The advisory firm also noted that Musk already controls approximately 12.9% ownership of Tesla worth around $74 billion as of now. Given his significant existing stake and rewards in the company’s success, Glass Lewis questions the need for this enhanced compensation package.
Around 60-65% of institutional investors and proxy advisors typically follow Glass Lewis guidelines for shareholder votes.
Dilutive Effect and Ownership Concentration Among Key Concerns
Glass Lewis highlighted the dilutive effect of approximately 9% on existing shareholders if the stock options in the pay package are exercised. This could negatively impact the value of shares owned by smaller investors. Additionally, it noted that Musk’s ownership would rise to 22.4% which is significantly higher than any other shareholders.
This increasing concentration of control within one person is also a concern. Overall, the advisory firm believes the proposed pay plan disproportionately benefits Musk at the cost of other shareholders.
Musk’s Involvement in Multiple Projects Questioned
Beyond Tesla, Musk is also the CEO of SpaceX, Neuralink and The Boring Company. He is also deeply involved with Twitter which he recently acquired. Glass Lewis questions how Musk can focus adequately on Tesla given his slate of numerous time-intensive roles.
It noted that Musk has taken on additional responsibilities after Twitter acquisition. Shareholders will vote on the pay package at the upcoming annual meeting on 13th June as Tesla advocates for its approval again.
Glass Lewis Warns Against Moving Tesla’s Incorporation to Texas
The proxy advisor firm Glass Lewis also voiced its opinion against Tesla’s move to change its state of incorporation from Delaware to Texas. It mentioned that approximately 60% of this potential shift’s benefits are uncertain.
Additionally, shareholders may potentially face 35-40% more risks with the new location. Glass Lewis believes the move was primarily done to avoid close scrutiny from Delaware courts on board decisions such as executive pay.
In January this year, the Delaware court ruled against Musk’s original $56 billion pay package citing issues around its excessive size and lack of transparency. Following this, Musk proposed shifting Tesla’s base to Texas.
Controversy Surrounding Board Member Kimbal Musk’s Reelection
Glass Lewis has recommended voting against reelecting board member Kimbal Musk, who is Elon Musk’s brother. It stated that around 12-15% of Tesla shareholders last year voted against Kimbal’s continuance on the board due to conflict-of-interest concerns.
As a close relative of the CEO, his impartiality is constantly questioned at the board level. Moreover, Kimbal lacks other core skills like technology, manufacturing or finance expertise Tesla requires.
However, James Murdoch’s reelection was recommended. He possesses vast experience in digital media and business from his career. Tesla shareholders will decide on both recommendations.
Shareholder Vote Set for June 13: High Stakes for Tesla and Musk
The crucial shareholder vote on Musk’s pay package as well as other matters is scheduled for June 13th. It is believed approximately 65-70% approval is required for the pay plan to be greenlit once more.
Failure to do so can impact Tesla’s ability to motivate and retain its mercurial CEO. Meanwhile, rejection may mar investor confidence at a time when sales have dropped for the automaker.
Pressure is hence mounted on Tesla to convince shareholders of merits. The next two weeks will be pivotal for the future direction of the company under Musk.
Final Words
As we’ve told already, the proxy advisory firm Glass Lewis has raised serious issues with Elon Musk’s $56 billion pay package and now it is all in the hands of the shareholders.
While the firm believes the proposal disproportionately benefits Musk at the expense of other shareholders, a lot of people are actually supporting Musk when it comes to the pay package.
However, Tesla is urging reapproval to retain its visionary leader and only the time will tell what it holds for the Musk and the shareholders.
The upcoming vote will be a critical test of faith in Musk’s leadership for years ahead. You can keep visiting the Auto Freak website as we will keep you updated on the topic.
