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Key Takeaways
- The electric vehicle company has launched a media blitz, asking shareholders to approve a trillion-dollar pay package for its CEO or risk losing him.
- Another proposal, with a vote due this week, asks for board authorization to invest in xAI, the Musk-founded company that developed AI-assistant Grok and owns social media platform X.
Tesla wants to make Elon Musk, the world’s richest person, even richer. Again.
The electric-vehicle company, which aims to pivot into AI and robotics, is set to hold its annual shareholder meeting on Thursday; Its board is asking investors to vote for a plan that includes a CEO performance pay package potentially worth $1 trillion to Musk. The award, as well as other proposals, has drawn criticism and support from a cast that includes advisory firms, labor unions, shareholder groups and devotees of the executive.
Tesla (TSLA) has ramped up its campaign for Musk ahead of the vote, unleashing a media blitz containing an ultimatum: Pay up or risk losing him at a vital moment for the company. It advertised on the social media platform X, saying: “The Future of Tesla Is in Your Hands.” Chair Robyn Denholm on CNBC’s “Squawk Box” last week exhorted shareholders to vote as the company’s Optimus robot handed out candy in Times Square.
“We’re changing transportation with AI and we’re changing the way households will work and how workplaces will work with robotics,” Denholm said. “Tesla aims to be at the forefront of that.”
Why This Is Significant
A central issue around Tesla’s proposed plan this year is key person risk. The company’s board believes that its long-term future rests on Elon Musk’s leadership. Corporate wisdom often suggests a firm’s dependency on one person or a small group of individuals can undermine the business at large. Tesla shareholders will share their viewpoints later this week.
During the company’s earnings call last month, Musk said the compensation package addresses his need to retain influence over the company without risk of being “ousted” unjustifiably. “The point is there needs to be enough of a voting control to give a strong influence but not so much that I can’t be fired if I go insane,” he said, according to transcripts provided by AlphaSense.
Another proposal in the 2025 plan, which could make Musk wealthier still, asks for approval to invest in xAI, a private AI company founded by the Tesla CEO. Musk has previously said there would be no Tesla-xAI merger coming but that he was open to an investment.
A coalition of labor unions and corporate watchdogs are pushing back, urging shareholders to vote against the compensation proposal. They took issue with Musk’s embrace of “right-wing political movements” and the decline in Tesla’s sales. Shares are up 23% year-to-date through Monday’s close.
Opponents Remain Worried About ‘Key Man Risk’
Some big shareholder advisory firms are against the proposal. The pay package was designed to retain Musk because of the board’s belief in his extraordinary capabilities, but “there are no prescriptive elements within the award to ensure his focus and time remain on Tesla,” ISS wrote in its report. Glass Lewis warned of the “significant dilution” implied by the pay package structure, and the “absence of strong provisions to limit key man risk.”
The company in an X post said the reports “defy basic common sense” and that their “benchmark approach is designed to flag deviations from the norm,” which is ill-suited for Tesla.
The State Board of Administration of Florida in a letter supported the overall plan, saying the cost of dilution was outweighed by the trillions of dollars in potential value creation. Cathie Wood, chief of Ark Invest and a longtime Tesla backer, said that if Musk and the company met their outlined goals “employees and their families will become more wealthy than they ever dreamed possible.”
Musk’s pay has been a source of drama before. The CEO earned Tesla’s 2018 performance package, but a Delaware court rescinded it and rejected the company’s appeal. The company has since moved to Texas, where the 2025 package, if approved, stands to be insulated from similar lawsuits given the state’s business-friendly governance laws.
If prior voting results are any indication of next week’s vote, the new plan will likely pass. Tesla disclosed that 72% of voting shares, excluding Musk’s and his brother Kimbal’s, supported the 2024 plan. A big turnout in retail investors—some 30% of shareholders—helped clinch the vote.
