Tesla (TSLA) Stock: Musk’s Trillion-Dollar Payday Faces Shareholder Showdown Thursday

TLDR

• Tesla shareholders vote Thursday on Elon Musk’s compensation package potentially worth up to $1 trillion if all performance targets are met
• Norway’s $1.9 trillion sovereign wealth fund and California’s CalPERS pension fund oppose the package, citing excessive size and dilution concerns
• Musk currently holds 13% of Tesla and can vote his 15% stake under Texas law, potentially securing approval
• Three board members including compensation committee members face reelection amid criticism over their own excessive compensation
• Shareholders also vote on whether Tesla should invest in Musk’s AI company xAI, with Glass Lewis recommending against it

Tesla shareholders face a critical decision Thursday at the company’s annual meeting in Austin, Texas. The main item on the agenda is CEO Elon Musk’s proposed compensation package.

The package could be worth up to $1 trillion if Musk hits all performance targets. It represents the largest executive pay proposal in corporate history.

Norway’s $1.9 trillion sovereign wealth fund announced it will vote against the package. The fund holds a 1.2% stake in Tesla.

California’s CalPERS pension fund also opposes the compensation plan. Both institutional investors cite governance concerns and excessive dilution of shareholder value.

Tesla, Inc., TSLA

Musk currently owns 13% of Tesla after selling shares in recent years. His 2018 pay package remains tied up in Delaware courts following a shareholder lawsuit.

A judge previously ruled that package an “unfathomable sum” resulting from negotiations with conflicted directors. The Delaware Supreme Court is reviewing Tesla’s appeal.

The Trillion-Dollar Proposal

The new package would grant Musk 12 tranches of stock options tied to aggressive performance targets. The options would vest over seven and a half years.

If approved, Musk would reach around 25% ownership of Tesla. He claims this level of control is necessary for him to remain with the company.

The pay package ties payouts to Tesla reaching an $8.5 trillion market value within a decade. The company’s current market cap stands at $1.5 trillion.

Some shareholders believe the compensation is justified if Musk delivers on his promises. Nancy Tengler, CEO of Laffer Tengler Investments, supports the package.

Critics argue the package is excessive regardless of performance. Brian Dunn, director of Cornell University’s Institute for Compensation Studies, testified against Musk’s 2018 package.

Proxy advisers Glass Lewis and ISS both recommend voting against the proposal. They cite excessive dilution and lack of board independence.

Glass Lewis pointed out the board has broad discretion to approve stock tranches even if Musk misses targets.

Board Elections and xAI Vote

Three board members face reelection Thursday. Ira Ehrenpreis sits on Tesla’s compensation committee and the nominating committee.

Kathleen Wilson-Thompson serves on both committees plus the disclosure committee. Airbnb co-founder Joe Gebbia sits on the audit committee.

Glass Lewis recommends approving Gebbia but opposing Ehrenpreis and Wilson-Thompson. All three are expected to win reelection to three-year terms.

Earlier this year, Tesla directors returned $919 million in a settlement over excessive compensation from 2017 to 2020. Board chair Robyn Denholm and James Murdoch were among those directors.

Shareholders also vote on whether Tesla should invest in Musk’s AI startup xAI. The company has raised substantial capital and competes with other major AI firms.

xAI’s Grok chatbot now appears in newer Tesla vehicles. Musk suggested an investment might make sense.

Tesla’s board offers no recommendation on the xAI investment proposal. Glass Lewis advises against it, arguing shareholders should not make such operational decisions.

Musk can vote his 15% stake under Texas law, where Tesla reincorporated after leaving Delaware. This gives him potential control over the outcome.

The meeting begins at 4 p.m. ET Thursday with votes expected to be announced shortly after.

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