Proxy Advisor Opposes Musk’s Compensation Package
Institutional Shareholder Services (ISS), one of the most influential proxy voting advisory firms, has recommended that Tesla investors reject a proposed compensation package for CEO Elon Musk that could grant him nearly $1 trillion in additional stock, according to reports released Friday. The recommendation comes ahead of Tesla’s scheduled November 5 annual shareholder meeting, where investors will vote on the “mega performance equity award” designed to retain Musk long-term.
Compensation Scale Raises Concerns
The report states that while the proposed award “has an astronomical grant value conditioned upon far-reaching performance targets that, if achieved, would create enormous value for shareholders,” ISS expressed “unmitigated concerns surrounding the special award’s magnitude and design.” Analysts suggest this would represent the largest compensation package ever awarded to a public company CEO if approved.
According to the analysis, the package could net Musk up to an additional 12% stake in Tesla should the company achieve an $8.5 trillion market capitalization and meet other performance goals. This comes as Tesla, Inc. continues to navigate competitive pressures in the electric vehicle market while expanding into other technology sectors.
Tesla’s Strong Rebuttal
Tesla immediately pushed back against the ISS recommendations, with the automaker accusing the advisory firm of missing “fundamental points of investing and governance” in a post on X, the social media platform owned by Musk. The company reportedly complained that ISS had previously “recommended against compensation that shareholders have voted on twice before (and that Elon has already earned).”
In its statement, Tesla urged shareholders to vote with the board’s recommendations on all proposals included in the 2025 proxy. The company emphasized that under the proposed award, “Elon Musk receives nothing unless shareholders win big.”
Historical Context of Musk Compensation
This isn’t the first time ISS has opposed Musk’s compensation plans. The firm previously advised investors to reject a “ratification” of Musk’s 2018 CEO pay package, which was worth an estimated $56 billion at the time. That package was subsequently voided by the Delaware Court of Chancery, which ruled early last year that it had been improperly granted by the Tesla board.
The court determined that Tesla had hidden crucial details from shareholders that they were entitled to before voting and that Musk had controlled the board during the approval process. Musk has appealed that decision to the Delaware State Supreme Court, with opening arguments in the appeal heard by a panel of judges this week, according to court documents.
Additional Governance Recommendations
Beyond the compensation package, ISS also recommended that shareholders vote against giving Tesla’s board authorization to invest in xAI, the artificial intelligence company Musk started in March 2023. The connection between Tesla and xAI has drawn scrutiny, particularly since Tesla has sold tens of millions of dollars worth of its Megapack battery energy storage systems to xAI.
ISS additionally recommended against voting to reinstate Tesla board member Ira Ehrenpreis, a longstanding friend of Musk who presided over Tesla’s governance committee when the company changed its corporate bylaws to limit shareholders’ ability to sue for breach of fiduciary duties. The bylaw change, implemented without a shareholder vote, now requires that only shareholders owning at least 3% of company stock can bring derivative actions.
Voting Dynamics and Market Influence
Proxy advisors like ISS, along with Glass Lewis and smaller peers, can significantly influence how shareholders decide to cast their votes at annual elections. Musk himself accused ISS and Glass Lewis in 2023 of effectively controlling the stock market because of their influence with passive or index funds in some matters. In a controversial comparison, he had previously baselessly likened ISS to a terrorist organization.
Musk will be able to vote his own shares in the decision concerning his future pay. Recent disclosures indicate he holds at least 13.5% of Tesla’s voting power, which analysts suggest could be enough to secure approval for the nearly $1 trillion pay package given typical shareholder voting patterns. The voting occurs amid other industry developments and market trends that could influence investor sentiment.
The recommendation against Musk’s compensation comes as Tesla continues to innovate in recent technology sectors beyond automotive manufacturing. The company’s third-quarter results, scheduled for release Wednesday, may provide additional context for shareholders considering the compensation proposal. As with other related innovations in the technology sector, the outcome of this vote could set precedents for executive compensation across the industry.
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