Tesla Shareholders to Vote on Elon Musk’s $1 Trillion Pay Plan — Control
of Company at Stake
Mr. Musk’s supporters say he may quit if
shareholders don’t approve a trillion-dollar package. Some investors say it’s
excessive and would give him too much sway.
The Vote:
Tesla shareholders are set to decide this week whether to approve a new
10-year pay package that could grant Elon Musk stock worth nearly $1
trillion, giving him control over roughly 29% of Tesla’s shares if
all performance targets are met.
The Stakes:
Supporters say the plan will keep Musk motivated to lead Tesla’s next phase —
expanding into robotics and self-driving technology — while critics warn
it would give him excessive power and reward him even if targets aren’t
met. A Delaware court previously struck down a similar pay plan over
concerns that Tesla’s board was too close to Musk, a ruling the company is
appealing.
The Plan’s Goals:
Musk’s compensation is tied to lofty benchmarks, including Tesla’s market
value rising to $8.5 trillion and the deployment of one million humanoid
robots. However, the board could still grant him shares under “exceptional
circumstances,” such as government interference or natural disasters.
Governance and Political Divide:
The fight has become deeply polarized, with Democratic-led states’
pension funds opposing the plan and Republican-led states supporting
it. Even Pope Leo XIV criticized the package as a symbol of widening
inequality.
Investor Reaction:
Proxy advisors Glass Lewis and ISS urged shareholders to reject
the proposal, warning it could allow Musk to gain shares without meeting real
operational goals. Tesla and its board chair, Robyn Denholm, defended
the plan as fair and essential to retain Musk’s “visionary leadership.”
Power and Control:
Musk already controls about 15% of Tesla, but the new package could
cement his dominance. He has said he values influence over money,
calling Tesla’s control critical to “the future of civilization.”
Additional Votes:
Shareholders will also vote on measures including a proposal to let Tesla
invest in Musk’s private AI firm, xAI, and
another to restore small shareholders’ right to sue — a right limited
after Tesla’s move to Texas.
Outlook:
Analysts expect the plan to pass, largely because Musk can vote his own shares.
However, a narrow margin among outside investors could damage Tesla’s
corporate image and question the strength of shareholder trust.
Tesla’s
shareholders will decide this week whether the automaker should award its chief
executive, Elon Musk, stock worth almost $1 trillion if he achieves a series of
impossible-sounding goals.
But
there are big questions about how tough those goals really are.
Mr.
Musk would acquire voting control over nearly 29 percent of Tesla shares if he
met all of the targets in a 10-year performance plan. Among other things, the
company would have to deploy one million humanlike robots and boost its stock
market value to $8.5 trillion from $1.4 trillion today.
That
sounds difficult. But the plan would also allow Tesla’s board of directors to
grant Mr. Musk a portion of the shares even if he fell short. Some corporate
governance experts said the board, which includes Mr. Musk’s brother and
several longstanding friends and business associates, could award him shares
regardless of his performance.
“These
are not independent decision makers,” said Dorothy Lund, a professor at
Columbia Law School who teaches and writes about corporate governance.
She
cited a Delaware court decision that struck down a previous pay plan for Mr.
Musk in part because the judge found that many Tesla directors were too close
to him personally or owed their wealth to him.
Tesla
has criticized that decision as violating the will of Tesla shareholders, who
approved the earlier plan by large margins twice. The Delaware Supreme Court is
expected to rule soon on the company’s appeal.
Tesla’s
board is “very active, very independent, and I think the outside world doesn’t
appreciate it,” Robyn Denholm, the board’s chair, said in a September interview
with The New York Times.
Supporters
of Mr. Musk said the board should have some leeway in awarding shares because
markets and technology could change. They also contend that they don’t believe
that he would be given shares he had not truly earned.
“I
don’t see that as a big concern,” said Andrew Rocco, a stock strategist at
Zacks Investment Research. “As controversial as Musk is, he sets big goals, and
in time he attains these goals and surpasses them.”
Ms.
Denholm said there were no escape clauses for a key part of the plan that would
require Mr. Musk to raise Tesla’s stock price by 500 percent. “Market
capitalization — the market’s verdict on real value — can’t be ‘gamed’ through
aggressive pricing or other tactics to create illusory growth,” she said in a
letter to shareholders.
Tesla,
Mr. Musk and their critics have been waging contentious campaigns before the
company’s annual meeting on Thursday. The fight has distinct echoes of the
hostility that characterizes American politics. Mr. Musk’s right-wing politics
appear to be at play, too, with state pension managers in states governed by
Democrats, like California and New York, opposing the pay plan and those in
Republican-run states, like Florida, supporting it.
Even
Pope Leo XIV has weighed in, citing Mr. Musk’s pay as an example of the gap
between rich and poor. “If that is the only thing that has value anymore, then
we’re in big trouble,” he told Crux, a Roman Catholic news site, this summer.
Mr.
Musk and his critics are agreed on one thing — this is a fight over how much
influence he has over Tesla. Mr. Musk has said he is more interested in greater
voting control than in money. After taxes, his stake would be around 25
percent. While that is well short of a majority, in practice it would be very
difficult to pass measures he opposed.
“I don’t think it’s an overstatement to say
that it would revive the era of robber barons who wielded near-absolute
control,” Brad Lander, the New York City comptroller, said during a conference
call organized by SOC Investment Group, an organization associated with labor unions that opposes Mr. Musk’s compensation plan.
Tesla’s
board sees the plan as a way to motivate him as he transforms the company from
primarily selling electric cars to making robots and self-driving taxis.
The
board points to Mr. Musk’s achievements. Tesla is the only profitable U.S.
electric carmaker. His admirers in and out of the company see him as the only
person who can deliver products that usher in “sustainable abundance.”
But
Tesla’s robots and self-driving cars may not generate significant revenue, let
alone profits, for years. Skeptics say some of his
promises, including that Tesla robots could care for children or perform
surgery, are far-fetched.
Mr.
Musk told investors and analysts in October that he needed to have strong
influence over the “robot army” that Tesla would build. His supporters
interpreted that as a desire to prevent control from falling into the wrong
hands.
“Control
of Tesla could affect the future of civilization,” Mr. Musk said on X.
Visions
of futuristic products are central to Tesla’s lofty stock-market valuation,
said John Paul MacDuffie, a professor of management at the Wharton School of
the University of Pennsylvania who focuses on transportation. Wall Street
values Tesla at more than four times the value of Toyota Motor, the world’s
largest car company by sales.
“Musk
has persuaded some investors that everyone is going to be in a robotaxi,” Mr.
MacDuffie said. “I don’t buy it.”
For
Mr. Musk to collect the whole package, which is broken into 12 parts, Tesla
would have to achieve milestones like selling 10 million subscriptions to
self-driving software and increasing earnings before depreciation and other
items to $400 billion from $17 billon last year.
“He
doesn’t get any compensation if he doesn’t deliver,” Ms. Denholm, the board
chair, said during the Times interview at Tesla’s California offices.
She
said Mr. Musk required enormous compensation because he was driven to do things
“that no one else has done before, doing things that further humankind.”
But
the board could give him some of the shares if it determined that he had missed
a product target because of natural disasters, war, interference by government
regulators or other, unspecified circumstances.
It
would be possible “for Mr. Musk to earn at least the first three tranches of
the award without meeting a single operational milestone,” according to a
report by Glass Lewis, a firm that advises investors on shareholder votes. Each
tranche includes stock worth tens of billions of dollars.
Glass
Lewis and ISS Stoxx, another advisory firm, recently recommended that investors
reject the pay package. During a conference call last month, Mr. Musk accused
the firms of “corporate terrorism.”
Tesla
said in a letter to shareholders that the firms’ opinions were flawed. “Their
analysis cannot distinguish between innovation and risk, or between ambition
and mismanagement,” the company said.
ISS
declined to comment on Mr. Musk’s remark. Glass Lewis said in a statement that
it offered “informed analysis and recommendations to our clients worldwide.”
Tesla’s
board has created a website to promote the pay plan and has run video ads on
social media. Mr. Musk has posted about the shareholder vote more than 60 times
in recent months.
The
intensity of the campaign reflects the board’s eagerness to win the vote by a
wide margin to mute criticism, said Ann Lipton, a professor of corporate
governance at the University of Colorado School of Law.
Many
analysts expect the plan to pass because Mr. Musk is allowed to vote his own
shares in Texas, where the company moved its incorporation after losing the
Delaware case on his earlier pay package. He controls about 15 percent of the
total. But if the new pay package secures fewer than half of shares owned by
outside investors, it could hurt Tesla’s reputation, Ms. Lipton said during the
SOC conference call.
“The
mythology of Elon Musk kind of depends on the perception that he has the
continuing devotion of Tesla shareholders,” she said.
Tesla’s
board said in a statement that the intensity of its campaign “is being driven
by the significance of this election to the future of Tesla” and the need to
reach smaller investors who collectively own a lot of the company’s stock.
Investors
will vote on other important measures, including an investor’s proposal that
calls for Tesla to invest in xAI, Mr. Musk’s
privately held artificial intelligence company. The board has taken no position
on that measure, but Mr. Musk favors it.
Shareholders
will also vote on a proposal by Thomas DiNapoli, the New York State
comptroller, to eliminate a restriction on shareholder lawsuits. After moving
its corporate domicile to Texas, Tesla took advantage of a state law allowing
it to ban suits by shareholders who own less than 3 percent of the company.
Only a few investment funds meet that threshold.
Tesla’s
board maintains that the restriction protects the company from suits by people
who don’t represent the views of a significant number of shareholders.
Investors
can still band together to clear that threshold, the board said in a regulatory
filing. Mr. DiNapoli, who oversees a pension fund that owns about $1.5 billion
in Tesla stock, said that was impractical and wants any shareholder to be able
to sue.
Ms.
Denholm warned shareholders in a letter last week that if they rejected the pay
plan, Mr. Musk might quit. “We run the risk that he gives up his executive
position, and Tesla may lose his time, talent and vision.”
To
Mr. Musk’s supporters, threatening to walk is a normal way to negotiate. But
Randall Peterson, a professor at London Business School who studies corporate
boards, said the dependence on a single executive was a red flag.
“The
graveyards are filled with indispensable men,” Mr. Peterson said.