An investor group representing several large public pension funds has sent a letter urging Tesla shareholders to vote down Tesla CEO Elon Musk’s trillion-dollar pay package, and to replace all of the board members up for re-election, detailing its concerns about Tesla’s corporate governance and risk to long-term shareholder value.
Tesla’s board recently announced a proposal for an eye-wateringly large pay package for its part-time CEO, Elon Musk. The package would be worth up to $1 trillion in stock, assuming various performance metrics are met, which are attached to the company’s stock rising significantly in value.
It would be the largest pay package ever given to any CEO in history, by multiple orders of magnitude.
The new proposal comes after a previous proposal to give Musk a $55 billion pay package, which was ruled illegal after the board misled shareholders and was ruled to be too closely tied to Musk. Tesla then put that same pay package up to another vote, using the same dishonest tactics, where it passed (by a relatively narrow margin, as far as board-recommended shareholder proposals go).
Unsurprisingly, given that the same Elon-tied board engaged in the same misleading behavior as it had before, the pay package was again voided, saving Tesla shareholders $55 billion.
But the story has continued. Tesla’s board moved in August to give Musk $26 billion, which would still be the largest pay package for any CEO in history. It’s also not far off from the total amount of profits Tesla has ever made over its entire lifetime (Tesla’s quarterly profits have been dropping for the last couple years, under Musk’s leadership).
All Musk has to do to get the money is remain CEO for two years – with no requirement not to remain distracted with his other private companies which he has shown favoritism to or been distracted by.
Musk says he wants the shares so he can have greater control over the company (after selling off much of that control to buy twitter) and defend himself from investors who would seek to replace him with a good CEO, but wants “not so much control that he can’t be thrown out if he goes crazy” (which he already has).
The $26 billion award is different than the previous shareholder proposal, as the move won’t allow a shareholder vote, and can only be opposed by an investor holding a minimum of 3% of Tesla’s stock (or more than $4 billion dollars worth). This minimum is due to an undemocratic law passed by Texas, the state where Tesla moved its corporate headquarters to after famously pro-corporation Delaware applied the law to its previous illegal pay proposal.
But the largest pay package ever in history does not seem to be enough for Musk and his captured board, and they’re now seeking $1 trillion.
However, a large investor group, several members of which opposed the previous pay package, has come out against this one as well – and has asked investors to replace the Tesla board while they’re at it.
Investor group calls for board removal, no $1T pay package
A group representing several large pension funds sent a letter to Tesla investors today, detailing the problems it has with Tesla’s corporate governance. It recommends that shareholders vote against the reelection of Ira Ehrenpreis, Joe Gebbia, and Kathleen Wilson-Thompson, and vote against Proposals 3 and 4, which are both related to the $1 trillion award for Musk.
The letter is signed by SOC Investment Group, Friends Fiduciary Corporation, SHARE, several state treasurers (CO, CT, MA, MD, NM, NV, VT), the New York City Comptroller, the American Federation of Teachers, Afa Försäkring, a Swedish insurance group. These entities for the most part hold long-term funds (for retirement and the like) which are interested in stable corporate performance, rather than volatility.
It points out Tesla’s declining performance over the last few years, with dropping sales and profits and high stock volatility. It says that the company is losing ground on EVs compared to competitors which have rapidly brought new models to market, while Tesla has not. It points out that even in the areas where Musk claims Tesla will be a leader, robotics and driverless taxis, it has not shown that it has a lead over competitors.
The group blames this poor performance on a captured board. It points out that companies with independent boards perform better, and that Tesla’s board has deep personal ties to Musk, and thus cannot challenge him when he takes detrimental actions for the company. Two board members are current or former Tesla executives, four are friends or family of the CEO, and four have been tenured on the board for 10 years or more.
And the board as a whole is highly paid, which threatens impartiality (and was subject to a lawsuit). Tesla’s board chair Robyn Denholm has been paid nearly 200 times as much as the average S&P 500 director.
Further, the board has allowed Musk to be distracted with other companies and government misadventures, while overpaying him despite his lack of focus on the company. While these pay packages have been marketed in a way to claim that they will “energize and focus” Musk, there is a history of Musk channeling resources from Tesla, a public company where he should be beholden to the board and shareholders, to his own private companies, which the board has done nothing to stop.
While only three directors are up for reelection, the investment group urges shareholders to vote down each of them. It notes that Ehrenpreis is a close friend of Musk, Wilson-Thompson has hundreds of millions of dollars in shares (and has been selling them rapidly while telling employees not to) and was the sole decider in the original proposal of Musk’s illegal $55b pay package, and Gebbia has noted personal conflicts of interest before.
But beyond personal difficulties with each of these three directors, the group says that it is crucial to Tesla’s governance to replace as much of the board as possible, so that the process of overhauling Tesla’s poor governance can start.
In discussing other specific proposals, the letter says that Proposal 3, which creates a pool of shares to be given to Musk and other employees, was only made necessary by the board’s improper award of stock to Musk in the $26 billion pay package. Further, combining proposals to create a pool of shares for Musk and for employees disallows shareholders from voting for the employee pool independent of the Musk pool. It takes issue with the way these shares are offered to Musk, which could have tax costs for Tesla shareholders, and suggests that if Musk wants more control, he could just buy shares (which he recently did).
And on Proposal 4, the $1 trillion stock incentive, the letter states that the unprecedented nature of this payday is not matched by similarly unprecedented targets. It states that the performance targets are “vague” and “undemanding,” and “subject to significant discretion by what we believe is a non-independent Board.”
It goes over each of the widely-reported performance targets, relating to vehicle sales, FSD subscriptions, delivery of “bots,” and operation of robotaxis, and describes how each of those targets could be weaseled out of in the way they are worded, and says that it lacks confidence that the board will demand real achievement of those targets.
Even if other targets related to Tesla’s market capitalization are met, the letter points out that granting so much stock to Musk would dilute other shareholders, and that TSLA’s high volatility means that large price swings might result in equity awards for Musk which do not result from stable increases in shareholder value.
Along with this dilution comes an “erosion of rights” for shareholders at Tesla. The move from Delaware to Texas removed some voting rights from shareholders, and the board has historically required supermajority shareholder votes for changes in corporate governance. While a proposal exists to remove supermajority requirements this year, the board has not recommended a vote on it.
The letter concludes by stating that voting against these proposals is incredibly important, and could be the last time Tesla shareholders have meaningful say over the company. As Musk’s ownership percentage has fallen while he’s sold off stock for his various misadventures, this has opened up the possibility of shareholders voting in their own interests for once, rather than in Musk’s. The company itself has stated that the goal of these proposals is to ensure Musk has more control over the company, and then asks shareholders to give up their own control for a CEO who has proven to make poor decisions.
Electrek’s Take
We covered the last time an investment group with many of the same members called for a vote against Musk’s $55 billion pay package, and we agreed with that letter then, as we agree with this letter now. Unfortunately, shareholders made the wrong decision last time, but there’s still a chance to wake up now, despite that Musk has decided to temporarily focus all of his media efforts shilling for his trillion dollars.
Putting aside the many ancillary issues of how Musk has behaved publicly in ways that oppose Tesla’s mission for the last few years (which has been bad for Tesla, both reputationally and politically), on a strictly corporate level, Musk has been a bad CEO.
The company has falling sales in most markets, even as EV sales rise rapidly. Tesla might have been able to keep up if it had new models, but its only new model in 5 years is a flop. Musk cancelled the all-important $25k Tesla project, only to focus on robotaxis that don’t work after more than a decade of promises. He’s spent his time at other companies, and even channeled resources from public shareholders at Tesla to his own private hands. And he fired many of Tesla’s best-performers on an ego trip, causing chaos for the industry.
We could (and do) go on and on about his poor leadership and how Tesla would do better with another CEO who doesn’t threaten the company and spew lies, and we hope that the ridiculous numbers attached to this stock award might make shareholders realize what a goofy idea it is to give a bad CEO so much money.
We’ve also seen the ridiculous ads that Tesla keeps putting out, on a daily basis, shilling for shareholders to vote against their own interests. Yesterday, the company suggested that if Musk doesn’t get his trillion dollars in stock, Tesla employees won’t be able to afford houses. The whole thing is just stupid.
But why are we at Electrek interested in this shareholder vote? Because we, as a publication that advocates for EVs and wants all the clean air and efficiency benefits that come along with them (and, as lung-havers who live on this planet, you should too), want a strong EV industry. And Tesla, which has for some time been at the forefront at that industry, needs to be strong in order to keep the industry strong.
Tesla drove innovation in EVs early on, but is no longer at the forefront. It could be again, if it had better leadership. And the first step at solving that problem is reining in the excesses of the leader who is currently running the company into the ground and harming the industry as he does so.
Voting against this pay package, and against the captured board that has enabled this sort of behavior, is a concrete step that any Tesla shareholder can take to improve not just Tesla’s corporate governance, but the EV industry and, indeed, the future of the world’s transition towards sustainable transport.
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