June 19, 2024
Electric & Hybrid Cars

Tesla board recommends that retail investors support Elon Musk’s $56 billion compensation plan

Tesla Inc. is seeking to attract its unusually large base of retail investors in order to secure approval for Chief Executive Officer Elon Musk’s $56 billion compensation package.

To assist in this effort, the company’s board has enlisted the help of a strategic adviser, as per a source familiar with the situation. The adviser is collaborating with an external law firm to reinforce the campaign.

A dedicated Vote Tesla website has been established by the adviser to encourage participation among retail investors, who hold an estimated 42% of the company’s shares. The website urges shareholders to submit their votes online, via QR code, by phone, and by mail. It also includes a video featuring board Chair Robyn Denholm, emphasizing the importance of supporting Musk’s compensation for Tesla’s growth.

Leading up to Tesla’s upcoming annual meeting on June 13, investors will have the opportunity to vote on whether to uphold a compensation agreement from 2018. A Delaware judge had previously rejected the package, citing that Tesla directors had not prioritized the best interests of investors.

“We believe that one judge’s opinion should not override the millions of votes cast by all owners,” Denholm states in the video on the Vote Tesla website.

While the vote is advisory in nature, the outcome could significantly impact Musk’s leadership going forward. Securing majority approval would strengthen the board’s case against the Delaware court’s decision. On the other hand, a loss would be a substantial setback.

Musk has indicated that if he does not achieve a minimum 25% equity stake in the company, a critical component of the voided compensation package, he may explore developing products outside of Tesla. Reinstating the remuneration deal would enable the CEO to nearly double his current stake in Tesla to approximately 21%. However, the path for Musk to reach that increased stake becomes uncertain if shareholders do not approve it.

Across Musk’s social media platform X, supporters of Tesla have been expressing their backing for the CEO. Using the hashtag #VotedTesla24, numerous users claiming to be investors have shared that they have already cast their votes. Musk himself has encouraged shareholders to participate, reposting messages from individuals like self-proclaimed “Fangirl of Elon,” Alexandra Merz.

Merz, known as “Tesla Boomer Mama” on X and residing in Santa Barbara, California, has developed resources to assist Tesla shareholders in communicating with large index funds to request voting for shares held in retirement or other managed accounts.

“I want to ensure that retail investors participate in voting,” Merz commented over the phone. “But I also urge people to reach out to their fund managers.”

Despite the support from Musk’s followers, the board still faces the challenge of securing the necessary votes. Typically, only a limited number of retail investors actually participate in annual meetings.

One prominent retail investor, Leo KoGuan, has announced his opposition to the compensation arrangement. He has also publicly criticized Musk’s handling of Tesla, which has caused unease in the broader market.

While Tesla’s financial performance has been declining amidst a global slowdown in electric vehicle sales, the company recently announced a reduction in global headcount by over 10%. This news came shortly before the filing that urged shareholders to support Musk’s $56 billion pay package.

Moreover, a number of key executives have departed from Tesla as the focus shifted towards developing autonomous robotaxis over more affordable electric vehicles. Tesla’s stock has dropped by 29% this year, in contrast to a 10% increase in the S&P 500.

KoGuan, a billionaire businessman based in Singapore, has long been an admirer of Musk. However, he has become increasingly cautious of the entrepreneur’s numerous commitments and believes Musk’s role at Tesla should not simply serve as a means to fund other business ventures.

“The court has made its decision and many facts have come to light,” KoGuan remarked in an email. “He must respect and abide by the court’s ruling.”

KoGuan also mentioned his intention to vote against a separate proposal to move Tesla’s corporate headquarters from Delaware to Texas, the same location where the judge invalidated Musk’s compensation deal. In December 2021, Tesla had already relocated its corporate headquarters from California to Texas. The company is currently running sponsored advertisements to garner support for both proposals.

In addition to establishing the Vote Tesla website, the board’s strategic adviser is facilitating interactions with major asset managers. These investors collectively hold around 46% of the company’s shares, a decrease from approximately 70% during the initial vote in 2018, according to Bloomberg data.

Observers are eagerly anticipating the forthcoming recommendations from proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co., as these are expected to influence voting decisions, particularly for shares held in passive funds.

Following Musk, Tesla’s largest investors are Vanguard and BlackRock, both of which have holdings in various active and passive funds. Representatives from these asset management firms declined to provide comments, citing their policy on disclosing votes before annual meetings.

While the Tesla board was successful in winning the 2018 compensation vote with 73% approval, the current situation may pose greater challenges.

Shareholders who possessed stock six years ago have witnessed a substantial increase in the value of their investments as Musk met various compensation milestones. Musk achieved the remaining options in the second quarter of 2021 as Tesla’s valuation exceeded $650 billion and later reached approximately $1.2 trillion.

Presently, Tesla’s market capitalization is below $600 billion. Musk has attracted criticism for his activities on X, where he frequently expresses controversial political views and criticizes the media.

Nonetheless, there is no clear successor to Musk, who is widely recognized as the driving force behind Tesla’s evolution from a startup in Silicon Valley to the world’s most valuable car manufacturer. Shareholders have been praising Musk’s contributions to the company on social media while encouraging others to support the compensation package.

“It may not be much, but I have done my part!” a user on X exclaimed on May 11, sharing a screenshot of their vote confirmation. “The people stand with you, @elonmusk!”

 

FAQ

Q: What is the significance of the upcoming annual meeting for Tesla?

A: The annual meeting on June 13 will involve a vote on whether to uphold Elon Musk’s $56 billion pay package, which has faced challenges and criticism.

Conclusion

With the annual meeting approaching, Tesla is actively engaging with its retail investors and major stakeholders to secure approval for Elon Musk’s compensation package. The outcome of the vote will have significant implications for the company’s leadership and future trajectory.

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