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Proxy Advisor Opposes Musk’s Compensation Plan
Institutional Shareholder Services (ISS), one of the most influential proxy voting advisory firms, has recommended that Tesla investors vote against a compensation package for CEO Elon Musk that could reportedly be worth nearly $1 trillion, according to analysis published Friday. The recommendation comes ahead of Tesla’s scheduled November 5 annual shareholder meeting and proxy vote.
The “mega performance equity award” to Musk is designed to retain the CEO long-term and “has an astronomical grant value conditioned upon far-reaching performance targets that, if achieved, would create enormous value for shareholders,” the report states. However, ISS indicated that despite these potential benefits, “there are unmitigated concerns surrounding the special award’s magnitude and design.”
Historic Compensation Package at Stake
If approved, analysts suggest Musk’s compensation plan would represent the largest ever awarded to a public company CEO. Sources indicate the package could net Musk up to an additional 12% stake in Tesla should the company achieve an $8.5 trillion market capitalization and meet other ambitious performance goals. This comes as market analysts anticipate strong earnings across various sectors.
Tesla has strongly disagreed with the ISS recommendations. In a post on X, the social media platform owned by Musk, the automaker accused ISS of missing “fundamental points of investing and governance,” and complained that the advisors had previously “recommended against compensation that shareholders have voted on twice before.” The company urged shareholders to vote with the board’s recommendations on all proposals.
Legal Background and Previous Compensation Challenges
This isn’t the first time ISS has advised against Musk’s compensation packages. The firm previously recommended investors reject a “ratification” of Musk’s 2018 CEO pay package, which was worth an estimated $56 billion at the time. The Delaware Court of Chancery ruled early last year that the 2018 pay plan had been improperly granted by the Tesla board and must be rescinded, finding that Tesla hid crucial details from shareholders and that Musk had controlled the board.
Musk has appealed that court’s decision to the Delaware State Supreme Court, with opening arguments in the appeal reportedly heard by a panel of judges this week. According to the analysis, these legal developments create additional complexity for the current compensation proposal.
Significant Voting Power and Additional Recommendations
Musk will reportedly be able to vote his own shares in the decision concerning his future pay. According to the most recent available disclosures filed with the SEC, he holds at least 13.5% of Tesla’s voting power, which analysts suggest could be enough to secure approval for the nearly $1 trillion pay package on its own. In September, Musk added to his ownership of Tesla stock by purchasing another $1 billion worth of shares.
Among other ISS recommendations, the firm also suggested that shareholders should vote against giving Tesla’s board authorization to invest in xAI, the artificial intelligence company that Musk started in March 2023. Reports indicate Tesla has sold tens of millions of dollars worth of its Megapack battery energy storage systems to xAI, reflecting how data centers are building private power grids and other related innovations in energy infrastructure.
ISS additionally recommended against voting to reinstate Tesla board member Ira Ehrenpreis, a longstanding and close friend of Musk. This recommendation comes after Tesla changed its corporate bylaws in May to limit shareholders’ ability to sue for a breach of fiduciary duties, requiring that only a shareholder owning at least 3% of the company’s stock can bring derivative action. Ehrenpreis presided over Tesla’s governance committee when that change was implemented without a shareholder vote.
Industry Context and Broader Implications
The influence of proxy advisors like ISS and Glass Lewis on shareholder voting has been a subject of debate within corporate governance circles. In 2023, Musk accused both firms of effectively controlling the stock market because of their influence with passive or index funds in some matters, even baselessly comparing ISS to a terrorist organization in social media posts.
This high-stakes compensation debate occurs against a backdrop of significant technology advancements and evolving industry developments that are reshaping multiple sectors. Tesla’s response to ISS, posted on their official X account, emphasizes the ongoing tension between the company’s leadership and proxy advisory firms regarding executive compensation and corporate governance standards.
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