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Tesla shareholders are set to vote on Elon Musk’s $1tn pay deal on Thursday after the mercurial billionaire warned he will quit if the proposal fails.
Musk has argued he needs the package of additional shares to increase his control of the electric-vehicle maker to at least a quarter, up from 16 per cent, to protect Tesla from activist investors as it builds powerful artificial intelligence models and an “army” of millions of humanoid robots.
Tesla shareholders must decide whether the risk of losing Musk as chief executive outweighs the governance and societal concerns of awarding the world’s richest man what could be the biggest corporate payday in history.
The results of the vote are due to be announced at Tesla’s annual meeting at its Texas Gigafactory on Thursday afternoon.
Crucial to the outcome are Tesla’s three largest shareholders — Vanguard, BlackRock and State Street — which own 7.5 per cent, 4 per cent and 3.4 per cent respectively, according to the carmaker’s filings.
Smaller investors including Ron Baron and Cathy Wood of Ark Invest have said they would vote in favour. Musk and his brother Kimbal, who is on the board, are allowed to vote under Texas laws. They have had to recuse themselves in prior matters about his pay.
Tesla suffered a setback earlier this week when Norges, the seventh-largest shareholder with a 1.1 per cent stake, said it would vote against the package. Norway’s $2.1tn oil fund said it is “concerned about the total size of the award, dilution and lack of mitigation of key person risk”.
Proxy advisers Institutional Shareholder Services and Glass Lewis counselled investors to vote against the proposal. They criticised its “striking magnitude” and lack of “prescriptive elements” to ensure Musk prioritises Tesla over his other ventures.
For the package to pass, the majority of votes cast must be in favour, with abstentions counting against.
Chair Robyn Denholm, chief financial officer Vaibhav Taneja and general counsel Brandon Ehrhart spent last week in New York lobbying top investors for their support, warning of a bleak future for the $1.4tn carmaker should it lose Musk.
Denholm said in recent interviews with the Financial Times that the share price could collapse without Musk at the helm and that a package of this size is the only way to motivate the world’s richest man to put in superhuman effort and achieve “impossible things”.
Musk’s wealth and pay have been the subject of years of controversy and lawsuits. He has amassed a $460bn fortune across his empire including SpaceX and xAI. But Tesla stock accounts for the majority of his liquid assets.
A Delaware court struck down his prior pay deal last year. Even though Tesla surpassed targets that seemed impossible when they were set in 2018, the court determined that the $56bn package was excessive and the board was too close to Musk.
Tesla won a vote to reapprove the 2018 pay deal at its annual meeting last year, but the judge upheld her decision and it is now being appealed against at the state’s supreme court.
Under the new package, Musk would receive no salary or bonus and would collect shares in instalments unlocked by increases in Tesla’s market value, combined with ambitious profit and sales milestones.
To get the full amount, Musk needs to sextuple Tesla’s valuation to $8.5tn, boost earnings 24-fold to $400bn and sell millions of robots and autonomous driving subscriptions. He cannot sell any stock for seven-and-a-half years.
Investors will also vote on other issues at the meeting in Austin, including the re-election to the board of longtime Musk ally Ira Ehrenpreis — which ISS and Glass Lewis said investors should vote against because of his closeness to the chief executive.
Another shareholder proposal calls for Tesla to invest billions in xAI, Musk’s AI start-up.
