The 2 largest unbiased advisory corporations, Institutional Shareholder Companies and Glass Lewis, have each really helpful a “no” vote on the proposed pay bundle for Tesla CEO Elon Musk, citing many issues about shareholder dilution and different phrases of the plan.
In September, Tesla’s board proposed a inventory award price as much as $1 trillion for CEO Elon Musk. It consists of a number of milestones relating to Tesla inventory and product efficiency, every of which unlocks tens of billions of {dollars} for Musk.
It’s the most important award proposed for any CEO of any firm by a number of orders of magnitude – with earlier proposed Musk awards holding the second and third place positions as properly.
Along with that much-reported proposal, one other proposal is up for a vote which might create a particular share reserve of 208 million shares (present worth $92 billion) which the Tesla board may give to Elon Musk with no string connected.
Each proposals might be voted on by TSLA shareholders at Tesla’s shareholder assembly on November 6.
There are numerous particulars and historical past behind this proposal which we at Electrek have lined extensively. Most lately, I went over many of the particulars of the inventory award on this article: Elon Musk’s $1 trillion inventory award will get extra ridiculous the extra you look into it.
However now, each of the most important unbiased advisory corporations have chimed in to level out issues concerning the proposals in entrance of shareholders.
ISS and Glass Lewis state issues with Musk pay packages
Institutional Shareholder Companies (ISS) and Glass Lewis are “proxy advisory” corporations, each of which who do analysis and evaluation of firm proposals after which make suggestions to shareholders about vote for them.
Firm boards typically have their very own advice on a difficulty, which can or is probably not the very best for shareholders – particularly if these boards are missing in independence, and should make suggestions that favor administration personally over shareholders as a complete. So, it’s necessary for unbiased exterior advisors to take a look at proposals and provides their take.
Proxy advisory corporations are usually much less within the specifics of what trade an organization is in, and simply wish to guarantee good company governance – unbiased and various boards, acceptable govt compensation, and so forth.
These suggestions are sometimes adopted by institutional traders – banks and different massive corporations that maintain massive chunks of shares in lots of corporations, lots of which they gained’t observe deeply. In order that they rent advisory corporations to assist them make choices on votes.
ISS and Glass Lewis mixed make up the overwhelming majority of the proxy advisory market, so after they make suggestions, it may sway numerous votes.
And, in wanting on the proposals in entrance of Tesla traders for this 12 months’s shareholder assembly, each of them have acknowledged important issues.
On Friday, ISS acknowledged that whereas it acknowledges Musk’s “observe file and imaginative and prescient” and the board’s intent to retain him for these causes, the pay bundle “locks in terribly excessive pay alternatives over the following ten years” and “reduces the board’s capability to meaningfully regulate future pay ranges.”
It additionally identified that the proposal is designed in such a method as to permit extraordinarily excessive pay for Musk even when most milestones aren’t achieved, and acknowledged that its “astronomical” dimension would dilute shareholder worth and voting rights.
Glass Lewis’ advice counters Tesla board on most proposals
At this time, Glass Lewis echoed ISS’ assertion, saying that dilution to shareholders “warrants important concern.” It really helpful shareholders to vote towards all three pay-related proposals (2, 3 and 4), and to vote towards re-election of board members Ira Ehrenpreis and Kathleen Wilson-Thompson, although it did advocate voting for the re-election of Joseph Gebbia. Electrek obtained a full copy of Glass Lewis’ report, however not of ISS’.
Glass Lewis calls proposal 3 “notably regarding,” because it ties a 208 million share award for Musk to the creation of a pool of 60 million shares for all different Tesla staff mixed, and notes that the worker pool is simply necessitated by the board’s earlier motion draining the pool of shares for workers and giving all of them to Musk. It means that shareholders vote down this proposal, and that the corporate put up a separate, clear proposal to refill the worker pool.
And proposal 4, the $1 trillion award, is famous as being excessively dilutive for present shareholders and permitting an excessive amount of focus of possession into Musk’s fingers, together with producing extra “key man threat” for Tesla. Glass Lewis states that attaching Tesla’s future so inextricably with Musk’s is dangerous, given his “huge and assorted pursuits,” and suggests it might be cheap to “units parameters that restrict the important thing man threat to which shareholders are uncovered,” which the corporate has chosen to not do.
It additionally notes concern over promising billions of {dollars} of awards to Musk for doing a few of the most simple issues {that a} CEO is supposed to do, resembling creating a succession plan. Shareholders ought to “moderately be involved that the committee feels the necessity to compel Mr. Musk to carry out such duties, notably at such value to shareholders.”
The milestones concerned within the award are famous as probably being straightforward to attain, notably provided that the board can determine on a whim to grant a tranche of inventory even when a product milestone isn’t reached, if market realities have modified between at times (a “lined occasion”) leading to these product milestones turning into unrealistic. The board is given important discretion on this matter.
Lastly, Glass Lewis factors out the hazard of permitting Musk to vote his whole possession stake in favor of his personal pay, which was not the case within the final shareholder vote over Musk’s pay. This implies primarily a free 15% head-start on the vote, due purely to Musk’s personal shares. Glass Lewis cites surveys of its shoppers and others, stating {that a} majority of each shareholders and non-investors suppose that executives shouldn’t be capable of vote on their very own pay packages in stating that Musk’s capability to vote on this proposal doesn’t align with market expectations.
Glass Lewis additionally acknowledged its issues with a proposal for Tesla to spend money on xAI. xAI is a non-public firm which Musk began began to compete with Tesla (and is at present topic to a lawsuit for that motive). Glass Lewis mentioned that this matter needs to be determined by the board, not shareholders.
In sum, Glass Lewis’ suggestions ran counter to the Tesla’s board advice in virtually each case. The one proposals they agreed on are the election of Gebbia, ratification of Tesla’s auditor, and proposals 8 and 9, two shareholder proposals recommending Tesla undertake requirements on sustainability and baby labor.
Tesla responds by lashing out with assaults
Tesla has, expectedly, responded with assaults towards each corporations.
Each ISS and Glass Lewis have really helpful “no” votes on Musk’s pay packages up to now, citing related issues over their dimension and the quantity of dilution which they might trigger to shareholders. And Tesla has spoken out towards the 2 corporations in these cases.
On this occasion, Tesla attacked ISS, suggesting that its standing as a disinterested advisor (which doesn’t maintain shares within the firm) in some way makes it much less able to seeing the truth of the state of affairs. It additionally notes previous shareholder votes on different proposals, which had been totally different from the proposals on the desk as we speak. Musk additionally repeatedly known as ISS “terrorists” for his or her goal evaluation of his pay bundle.
And after Glass Lewis’ advice as we speak, Tesla levied one other assault, making related factors about votes on previous proposals, reasonably than the proposals in entrance of shareholders as we speak.
Individually, Tesla additionally attacked a bunch of pension funds which are invested in TSLA, mocking them for having returns of 7-13% (which, collectively, is above common for big steady funds). Tesla even employed an outdoor PR firm to publicize this assault.
Electrek’s Take
We’ve been clear right here, time and again, about how ridiculous this inventory plan is.
Nevertheless, regardless of it seeming ridiculous at first look, it solely will get extra ridiculous the deeper you look into it.
I went over all of it this weekend within the article talked about above, Elon Musk’s $1 trillion inventory award will get extra ridiculous the extra you look into it. It’s lengthy, however if you need extra element, that’s the place to go.
Briefly, the analyses introduced by these exterior corporations Tesla’s shareholder proposals, and the atmosphere round them, are clear-headed and made within the curiosity of Tesla shareholders. If shareholders truly learn the letters or analyses concerned with their very own pursuits in thoughts, they are going to possible be persuaded.
In the meantime, Tesla’s responses have been stuffed with the type of language that somebody would anticipate out of an entity that’s attempting to deceive – the type of language we’ve gotten used to in our politics. They learn as marketing campaign messages or promoting efforts, not as the results of deep evaluation. And Musk additionally threatened his personal firm simply yesterday, as soon as once more, within the hope that shareholders will really feel trapped sufficient that they vote to retain him.
If the one place folks examine that is on twitter, which Elon Musk purchased for the aim of spreading his personal propaganda and shutting down dissent (together with utilizing bots to take action), they could get one sense of what the proposals imply. In that upside-down world, TSLA traders can solely profit because the inventory goes up, and Musk solely advantages if the inventory goes up.
However wanting into the precise particulars of the proposals, it turns into obvious that Musk can get awarded with a bigger payday than any CEO ever for doing nothing in any respect, that that award comes at the price of each different Tesla worker and the voting rights of each Tesla shareholder, and that higher choices can be found which might preserve the rights of Tesla traders whereas additionally compensating its CEO (whose efficiency has been exceptionally dangerous lately).
However these choices haven’t been supplied to shareholders to vote on, as Tesla’s board is working extra in the good thing about their good friend Elon, reasonably than the good thing about TSLA shareholders as a complete.
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