📖 Your Q2 Earnings Guide: Discover the Stocks ProPicks AI Highlights to Jump Post-EarningsRead more

Top proxy adviser ISS recommends against Tesla CEO Musk's 'excessive' $56 billion pay

Published 05/30/2024, 10:17 PM
Updated 05/31/2024, 01:51 PM
© Reuters. FILE PHOTO: Elon Musk, Chief Executive Officer of SpaceX and Tesla and owner of Twitter, gestures as he attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 202

By Ross Kerber

(Reuters) -Top proxy advisory firm ISS recommended Tesla (NASDAQ:TSLA) shareholders vote against ratifying CEO Elon Musk's $56 billion pay package, calling the compensation excessive in a rejection of the plan set by the electric vehicle maker's board.

In a report sent by a representative late on Thursday, Institutional Shareholder Services also recommended a vote against Tesla director James Murdoch, but backed votes for director Kimbal Musk, Elon Musk's brother, and for the company's proposed move to change its state of incorporation to Texas from Delaware.

The move follows a similar recommendation for a vote against Musk's pay package by proxy advisory firm Glass Lewis last week.

The vote is seen as a referendum on Musk's leadership, as investors worry that the billionaire entrepreneur is distracted by his other ventures and that his often controversial comments are weighing on the reputation and sales of Tesla.

Tesla did not respond to a request for comment.

The massive compensation arrangement, the biggest for a corporate CEO in America, set rewards based on Tesla's market value and operational milestones. But in January, a Delaware judge voided the plan, and Tesla subsequently sought to move its state of incorporation to Texas.

Unusually, Tesla put the 2018 pay plan up for a re-ratification vote at its upcoming annual meeting on June 13.


While the recommendations from the big proxy advisory firms play a role in focusing attention on certain issues at corporate annual meetings, their exact influence on votes is up for debate and criticism.

A recent University of Utah study found their recommendations can have a significant impact on votes but also found the firms themselves may only be channeling the views of investors, their customers.

Tesla responded to Glass Lewis' recommendations in a securities filing earlier this week, saying Musk is creating wealth for Tesla stockholders and has "skin in the game."

In recommending votes against Musk's pay, ISS wrote that "although the structure of the grant's performance hurdles arguably contributed to, as well as reflect, the company's significant financial growth during the performance period, the total award value remains excessive, even given the company's success."

"In addition, the grant, in many ways, failed to achieve the board's other original objectives of focusing CEO Musk on the interests of Tesla shareholders, as opposed to other business endeavors, and aligning his financial interests more closely with those of Tesla stockholders," ISS' report said.

Other concerns include "a lack of clarity on the board's plan" for Musk's future pay, ISS wrote.

ISS recommended a vote against director and audit committee member Murdoch "given concerns about the risk oversight function of the board."

ISS wrote that while it had concerns about the process used by the Tesla board to decide to move to Texas, it is "not readily apparent that the rights of shareholders would be materially harmed as a result of the proposed reincorporation."

Tesla is making a public effort to rally support for the pay package and the company's board has justified the compensation by saying it is necessary to make sure Musk prioritizes Tesla over his other commitments.

Tesla shares were slightly lower in premarket trading on Friday, and have declined about 28% so far this year.

"It's a very interesting case for Tesla, given it is the most widely held stock globally by retail investors who frankly don't give a hoot about what ISS tells them to do," said Ben Laidler, global markets strategist at trading platform eToro.

About 44% of Tesla's common stock is held by non-professional shareholders including retail investors, the highest percentage of the 10 largest companies in the S&P 500, according to S&P Global Market Intelligence.

© Reuters. FILE PHOTO: Elon Musk, Chief Executive Officer of SpaceX and Tesla and owner of Twitter, gestures as he attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 2023. REUTERS/Gonzalo Fuentes/File Photo

A report by eToro earlier this month showed that votes had been exercised on around a quarter of all Tesla shares held by users of the trading platform, with more than 80% voting in favor of Musk's pay package.

"If anybody's going to buck the trend of what proxy advisors say, it's going to be Tesla. The vote is a real test case for the power of retail investors," Laidler said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.