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Proxy adviser Glass Lewis has urged Tesla shareholders to vote against Elon Musk’s $56bn pay award and a proposal to reincorporate the electric vehicle maker in Texas, a major blow for the board ahead of its crucial annual meeting next month.
Glass Lewis said the chief executive’s package of share options was unduly dilutive and of “excessive size” in a report released on Saturday. It also criticised the proposed move to Texas as offering “uncertain benefits and additional risk” to shareholders.
The proxy adviser also raised issues with Musk’s “slate of extraordinarily time-consuming projects”, in particular the 2022 acquisition and ongoing overhaul of Twitter, now known as X, which it claims are distracting the billionaire from leading the world’s largest EV manufacturer. Musk also runs SpaceX, Neuralink and the Boring Company.
Tesla’s board has been lobbying investors to re-ratify the $56bn award given in 2018, which was struck down by a Delaware judge in January due to concerns over its size and the independence of the board. In response, Musk vowed to leave the state and move Tesla’s incorporation to Texas.
Tesla chair Robyn Denholm has argued that Musk deserves to be paid so much because the company hit ambitious targets for revenue and its stock price. She brushed off criticism she is too close to the CEO as “crap”.
Glass Lewis’s recommendations are significant because they influence the voting of large institutional investors such as Vanguard, Capital Group, Norges and State Street, all of whom are top-10 shareholders in Tesla and voted against the pay proposal the first time around. Nevertheless, the proposal passed with 73 per cent approval.
Fellow proxy adviser ISS is expected to release its own report soon ahead of Tesla’s June 13 annual meeting.
While winning the pay vote would not overturn the court’s decision, the carmaker hopes it will prove investors still back the package six years later and could be decisive in subsequent legal appeals.
If successful, Musk’s stake will jump to more than 20 per cent from 13 per cent. A loss would be symbolically damaging for Denholm and the rest of the board and raise questions about Musk’s future at Tesla. He has threatened to develop future artificial intelligence products elsewhere if he does not gain greater control of the automaker, which he is repositioning as an AI and robotics company.
Some large investors have indicated they are prepared to back the award regardless of proxy advice. Baillie Gifford’s flagship Scottish Mortgage Investment Trust told the FT this week that it was in favour because Musk had delivered “remarkable corporate performance leading to huge creation of value for shareholders”.
Tesla also has to persuade thousands of retail investors around the world to vote in favour of the resolutions. They account for about 30 per cent of shares, an unusually high amount for a listed company, and will be crucial in the outcome.
On the pay vote, a simple majority must be in favour, excluding those shares owned by Musk and his brother Kimbal. Reincorporation in Texas has a higher bar, requiring a majority of all shares outstanding, meaning those not cast are counted as a “no”.
Glass Lewis also recommended voting against the re-election of Kimbal to the eight-person board, warning “shareholders may reasonably consider the board’s overall independence to be a material concern.”
