On Thursday, June 14th at 4:30 am Eastern Time (Beijing time), Tesla will hold its 2024 shareholder meeting, with a highly anticipated agenda being to vote on CEO Musk's compensation plan worth over $50 billion.
The Daily Economic News reporter noticed that Tesla's executives, including Chairman Robyn Denholm and Global Vice President Tao Lin, have started campaigning for Musk.
This incentive stock option worth over $50 billion was granted to Musk by Tesla's board of directors in 2018 as his compensation for the coming years, provided that Musk achieves a range of growth and profitability goals. However, earlier this year, due to a Delaware judge ruling that there was insufficient disclosure of investor information at the time, the previous vote was invalidated and therefore a second vote was needed.
After six years, Tesla's market value has increased by about nine times, and other companies founded by Musk, such as artificial intelligence company xAI and social platform X, have also gradually become larger, increasing concerns about its distraction from investing in other businesses.
Dan Ives, Managing Director and Senior Equity Analyst at investment bank Wedbush, stated in an email to the Daily Economic News that he expects Musk's compensation plan to be overwhelmingly re approved, putting an end to many uncertainties surrounding Musk.
The "sky high salary plan" is in a tug of war
As the CEO of the world's largest electric vehicle manufacturer, Musk never receives a traditional fixed salary, and his entire salary is linked to the company's market value and performance.
In 2018, Tesla approved Musk's 10-year long-term compensation plan, which includes 12 sets of market value and business objectives. If Musk can achieve all his goals, he will accumulate 12% of Tesla's stock options as a reward, which were worth approximately $56 billion at the time. This plan is also considered by foreign media to be the largest executive compensation plan in the history of the United States. Based on Tesla's current closing price on June 11th, these options are worth approximately $512 billion.
At that time, it seemed that achieving all of Musk's goals was not easy, as the market value target was as high as $650 billion, while Tesla's market value at that time was about $59 billion. However, shortly after the announcement of this long-term compensation plan, Tesla's development entered a fast lane, with a market value exceeding $1 trillion in 2021. Tesla also stated that in the six years after Musk's 2018 compensation plan was approved, he created over $735 billion in value for the company's shareholders.
As of the close of the US stock market on June 11th, Tesla's market value was approximately $544.3 billion.
However, in 2022, some shareholders of Tesla sued Musk, claiming that he had spent most of his energy on other companies such as SpaceX, while using control over the company and board to finalize long-term compensation plans. Therefore, shareholders hope to abolish the plan.
In January of this year, a Delaware judge declared Musk's long-term compensation plan invalid on the grounds of "unfairness to shareholders". Regarding this, Musk stated that he plans to move Tesla's registered address from Delaware to Texas, which is another major decision that Tesla's shareholders will have to vote on in addition to Musk's compensation plan at this shareholder meeting.
What is the crux of Musk's salary struggle?
One of the institutional investors opposing Musk's compensation plan is the California Teachers Retirement Fund. This large pension fund announced on Tuesday (June 11th) that it will vote against Musk's compensation, "because the compensation plan, worth over $50 billion, is too large, and the reward will greatly dilute shareholders' equity. In addition, we are also concerned that Tesla lacks attention to profitability."
In addition, on June 8th, the Norwegian sovereign wealth fund announced that it will vote against Tesla CEO Elon Musk's compensation plan worth over $50 billion. Norwegian Bank Investment Management, which is responsible for operating the fund, expressed appreciation for the significant value Tesla has created under Musk's leadership since the 2018 compensation plan was proposed, but still expressed concerns about the overall size of the compensation plan, performance trigger structure, equity dilution, etc. The fund holds 0.98% of Tesla's shares, valued at $7.7 billion, and is the eighth largest shareholder. The fund voted against Tesla's plan to pay exorbitant compensation to Musk in 2018.
On the opposite side, there is also the largest public pension fund in the United States, the California Civil Service Pension System, Calpers. The head of the system, Marcie Frost, clearly opposes Musk's compensation plan because "the salary he receives does not match the company's performance.".
In addition, opponents of Musk's compensation plan include Amalgamated Bank, the largest union bank in the United States, the New York City Auditor General's Office, asset management firm Nordea, Danish pension fund AkademikerPensions, and investment group SOC, among others, on a long list.
"Tesla shareholders approved the compensation plan in 2018, but now they vote against it, which makes them break their promises. It's very shameful and lacks a sense of honor," Musk said to these opponents
Of course, Musk also has supporters. Ron Barron, CEO of Barron Capital and one of Tesla's largest shareholders, stated in an open letter on the 5th that he supports Tesla in fulfilling its compensation plan to Musk, and also praised Musk's efforts for creating Tesla.
Cathie Wood, the founder of Ark Investment Management and known as the "female version of Buffett," praised Musk's contribution to Tesla shareholders and questioned how shareholders could "abandon his compensation plan" after Musk overcame the risks posed by Tesla's rise to become the world's best-selling car.
Tesla Chairman Robyn Denholm also wrote in a letter to shareholders that six years ago, Musk's compensation plan was approved with 73% of the vote. "But due to the Delaware court questioning your decision, Musk's work for Tesla over the past six years has not received any compensation, and these efforts have helped Tesla achieve significant growth and shareholder value. This has made us - and many shareholders - feel fundamentally unfair and not in line with the wishes of the shareholders who voted in support of it."
Todd Maron, former chief legal advisor to Tesla who participated in the development of Musk's 2018 compensation plan, also said, "I have witnessed Elon's incredible sacrifice, the pain he silently endured, and his outstanding leadership and decision-making abilities. He led by example, inspiring everyone at Tesla to achieve goals that most people were not even aware of, and the world has undergone earth shattering changes as a result."
If the "salary negotiation" fails, will Musk resign?
According to an Associated Press report, if the shareholder meeting opposes the restoration of Musk's compensation plan, Musk may bring AI research to another company, as he once threatened, and may even leave Tesla.
Last Saturday, Musk posted that approximately 90% of retail shareholders voted in support of his compensation plan. According to Bloomberg, this is crucial as approximately 45% of non insider held stocks available for trading are held by retail shareholders. If Musk's statistical data is accurate, then the compensation plan can be approved with only about one-fifth of institutional shareholders voting in favor.
Dan Ives, Managing Director of investment bank Wedbush, stated in an email to the Daily Economic News that he expects Musk's compensation plan to be overwhelmingly re approved, putting an end to many uncertainties surrounding Musk. "Musk's salary issue has been troubling Tesla's stock price, and it is important to resolve this distracting matter."
Morgan Stanley analyst Adam Jones also stated that according to his client survey, more than half of the respondents are expected to vote in favor. Although the results may be approved and may have been reflected to some extent in the current stock price, it is expected that Tesla's stock price will have more downside potential in the short term than upside potential after the voting results are announced.
If the plan is approved, it will benefit the stock price in terms of eliminating uncertainty, but it also means that Musk's continued investment in other fields such as AI is still a hidden danger. Analysis suggests that Tesla needs Musk's driving force, but in the long run, how Musk will balance its investment in Tesla and other businesses remains a question that requires continuous attention.