The decision is generating lots of headlines – largely because the first deal was struck down by a Delaware court in January, setting up a rematch as Musk takes on activist and institutional investors plus proxy advisory firms in a battle for investor hearts and minds. Who doesn’t love a good scuffle?
But it’s more than the lurid appeal of conflict. The issues at play get to the heart of modern capitalism: How important is one man to an organization’s fortunes? Who creates value in a business? Who calls the shots in a publicly traded company? What defines shareholder value in tech? And how much is enough when it comes to executive compensation?
Shareholders will be grappling with more earthly concerns: how will the deal affect their current holdings, future gains, and potential dividends? Other CEOs will be watching to see how much influence investors can have on their hefty pay stubs.
Critics also balk at the additional power the deal could give Musk in boardroom decisions. He currently owns around 13% of the company and has said publicly that he wants at least 25% of the firm’s voting shares. The options in the pay package would move him closer to that goal.
Influential proxy advisory firm Glass Lewis lambasted the deal in May with a 71-page report that urged shareholders to say no. Calling the $56 billion pay award ‘excessive,’ the firm also worried that the package would effectively hand control over Tesla to Musk. Re-incorporating in Texas would also be a mistake, the report said, as Texas business courts are overstretched and lack experience in complex matters.
The firm also took issue with Musk’s many ‘time-consuming business projects,’ which could distract his attention from running Tesla effectively. It also shot down a plan to re-elect his brother Kimball onto Tesla’s board, which would further cement his power over decision-making. Supporters Say ‘He Earned His Pay’
For Musk’s backers, the issue is the outsized impact Tesla’s CEO has had on both the company’s and investors’ fortunes. Musk is special, they say, and should be compensated in a special way.
“Elon is not a normal executive, and Tesla is not a normal company.” wrote Tesla Chairwoman (and shareholder) Robyn Denholm in a June 5th letter to Tesla investors.
She and other members of Tesla’s board defended the pay package as a mechanism to align Musk’s incentives with shareholders and keep him focused on the company, noting that Musk has not received any compensation other than the stock options and would have received nothing if Tesla hadn’t hit its targets.
In her letter, Denholm goes on to say that Musk’s contributions to Tesla ‘should be respected.’ She said:
“Elon’s unique contributions have built Tesla from a company that was, in 2018, a loss-making, ambitious company with significant hurdles and challenges to overcome into what it is today — a company that is literally changing the world by driving so many critical initiatives that are making our planet more sustainable while at the same time delivering hundreds of billions of dollars of value to all of you who invested in Tesla’s dream.”
That view is supported by billionaire investor Ron Baron, chairman and CEO of Baron Capital, which holds Tesla stock. In an open letter published last week he wrote that the pay package should be approved by shareholders on the back of Musk’s accomplishments and appreciation Tesla’s stock price has seen under his tenure.
“Tesla is better with Elon. Tesla is Elon.”
Tesla Chair Denholm says the company has an ‘Everest to climb‘ in order to win the vote, as restive shareholders worry about Tesla’s stock price, slowing sales, and the growing threat of Chinese EVs. The Bottom Line
Even if Musk is successful on Thursday, it may just signal that the next phase of the battle is about to begin.
A pro-Musk vote by shareholders can’t overturn a US court’s ruling. It might, however, provide just the evidentiary ammunition Musk needs for a legal appeal or rehearing of the original case.
