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Tesla Inc. investors are set to vote on Thursday on a controversial compensation plan that could allow CEO Elon Musk to receive stock options valued at a staggering $56 billion over the next decade. The pay package, which was first approved by Tesla's board in 2018, has drawn scrutiny from corporate governance experts and shareholder advisory firms who view it as excessively lucrative.
"This is a really high price tag for the company," said Michael Varner, director of executive compensation research at Ingham Analytics. "Even for a founder and leader like Elon Musk, $56 billion is a pretty dramatic figure."
Under the terms of the plan, Musk will earn the full payout only if Tesla's market capitalization reaches $650 billion and ambitious revenue and adjusted earnings goals are met. If successful, it could make the outspoken billionaire the richest man on Earth.
"Tesla has changed the world in significant ways and from my perspective merits being rewarded at the highest level," said Ross Gerber, a Tesla investor and CEO of Gerber Kawasaki Wealth and Investment Management. "This plan is based on operations meeting incredibly hard goals that if achieved will make every investor incredibly wealthy."
However, influential proxy advisory firms like Institutional Shareholder Services (ISS) and Glass Lewis have recommended voting against the package, claiming it lacks a operating metric related to Tesla's mission and that the market capitalization hurdles are too low considering the company's recent runup.
"Despite its stretch goals, the plan lacks focus on some key metrics that measure progress toward the company's mission, its need to disrupt industry on a global scale, including metrics for profitability and sustainability," ISS said in its report.
In a statement defending the plan, Tesla highlighted that Musk has never accepted any cash compensation from the company and his only remuneration since joining in 2004 has been the first Tesla compensation plan approved by shareholders in 2012.
"This individual was critical in navigating Tesla through the near-bankruptcy in 2018 and getting the company firmly on track toward growing free cash flow," Glass Lewis wrote, though it still opposes the new package.
The vote's outcome will hinge on large institutional investors like BlackRock, Vanguard and State Street, which together own around 20% of Tesla's shares. Some have already sided with managment, but others remain mum on their voting intentions. Observers will monitor the tallies closely as it could shape future compensation practices across Corporate America.
