(Bloomberg) — Tesla Inc. shareholders are being urged by proxy advisor Institutional Shareholder Services to reject CEO Elon Musk’s $56 billion compensation plan, creating a new hurdle for the carmaker’s board. electric cars.
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ISS said the pay package, initially approved by shareholders in 2018, was “proportionate from the start” and failed to achieve some of the board’s stated goals. The opposition comes days after another prominent proxy advisor, Glass Lewis & Co., recommended investors vote against Elon Musk’s compensation plan.
“Some investors may find compelling the board’s argument that it would be unfair if Musk did not receive the award,” ISS said in the report. “However, the concerns raised, both in 2018 and since, have not been sufficiently alleviated, particularly as the board has effectively only offered shareholders an ‘all or nothing’ option during this vote.”
Musk’s compensation has been hotly contested this year. In January, a Delaware judge overturned the salary amount, saying the automaker’s board was not fully transparent with shareholders when drafting the deal. Directors are asking investors to vote a second time at Tesla’s annual meeting on June 13 to demonstrate that shareholders still support the plan, which could facilitate a legal appeal of the decision.
Proxy companies such as ISS often have influence over shareholders, especially large institutions that hold shares in passive funds. However, both the proxy advisor and Glass Lewis recommended that shareholders reject Musk’s pay deal in the first vote in 2018. About three-quarters of investors still supported the package.
Tesla later responded to Glass Lewis’ latest report, saying the advisor had omitted key considerations, used flawed logic and relied on speculation and assumptions.
“Vote Tesla”
The outcome of the shareholder vote is only advisory, although a loss would be a major embarrassment to Tesla’s board and its top executive. Musk also threatened to make products outside of Tesla if he couldn’t increase his stakes in the company, which the pay deal would allow him to do.
Tesla’s board of directors has mobilized to try to gain shareholder support for the measure. Tesla Chairman Robyn Denholm reached out to large institutional investors and Tesla posted a number of announcements on X, formerly Twitter. The directors also hired a strategic advisor who helped create a “Vote Tesla” website, which says reinstating the pay package supports shareholder rights.
Additionally, the website urges investors to vote in favor of a proposal to move Tesla’s statutes from Delaware to Texas. The company has already moved its headquarters to Texas in 2021.
In its report, ISS said “cautious support” for the move was warranted, as it is not clear that shareholder rights would be materially harmed by the offshoring. However, he acknowledged the request was “out of the ordinary” and the process undertaken by the council left “something to be desired”. There are also risks given some unknowns in Texas business court practices, he says.
ISS noted that Tesla’s board of directors has stated that it intends to keep any pending litigation currently assigned to a Delaware court, including Elon Musk’s compensation case, in the state, which whatever the potential results of reincorporation are.
The proxy firm recommended voting to reinstate Tesla board member Kimbal Musk, Elon Musk’s brother, but against James Murdoch. Murdoch is a member of Tesla’s audit committee, and ISS raised concerns about the large number of actions promised and that the committee could not “effectively oversee risks.”
Both reports followed an open letter, written by a coalition of shareholders owning a small portion of Tesla’s stock, which said investors should oppose the pay deal.
–With help from Dana Hull.
(Adds additional comment from ISS from eighth paragraph.)
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