Elon Musk sees another big advisory firm come out against his multibillion dollar pay package

DETROIT– A second shareholder advisory firm has spoken out against reinstating a pay package for Tesla CEO Elon Musk that was struck down by a Delaware judge earlier this year.

ISS on Thursday evening joined Glass Lewis in recommending against the package, which was recently valued by the company at $44.9 billion but was worth about $56 billion in January.

Shareholders of the electric vehicle and solar panel company will vote on the package, and the results will be released at Tesla’s annual meeting on June 13.

ISS said in its recommendations on Tesla’s proxy voting items that Musk’s stock-based package was too large when approved by shareholders in 2018, and that it failed to achieve the board’s stated objectives at the time .

The company said Tesla met pay package performance targets and recognized the company’s substantial growth in size and profitability. But concerns that Musk is spending too much time on other ventures were raised in 2018 and have not been adequately addressed since, according to ISS.

“The grant in many ways failed to achieve the board’s other original objectives, which were to focus CEO Musk on the interests of Tesla shareholders, as opposed to other corporate efforts, and more closely align his financial interests to that of Tesla shareholders,” ISS wrote. .

Also going unaddressed are future concerns, including a lack of clarity about Musk’s future compensation and the possibility that his compensation will significantly dilute shareholder value, ISS wrote.

Musk plays a major role in his other ventures, including SpaceX, Neuralink and the Boring Company. Last year, he bought social media platform X and formed an artificial intelligence unit called xAI.

Last week, the other prominent proxy advisory firm, Glass Lewis, also recommended against reinstating Musk’s 2018 compensation package. The company said the package would dilute shareholder value by about 8.7%. The rationale for the package “in our view, does not sufficiently take into account dilution and its long-lasting impact on disinterested shareholders,” Glass Lewis wrote.

But in a proxy filing, Tesla said Glass Lewis had failed to consider that the 2018 award prompted Musk to create more than $735 billion in value for shareholders in the six years since it was approved.

“Tesla is one of the most successful companies of our time,” the filing said. “We have revolutionized the automotive market and become the first vertically integrated renewable energy company.”

Tesla is struggling with declining global sales, slowing demand for electric vehicles, an aging model lineup and a stock price that is down about 30% this year.

Tesla asked shareholders to reinstate Musk’s pay package after it was rejected by a Delaware judge this year. At the time, a request was also made to move the company’s legal home base to Texas.

Glass Lewis recommended against moving the legal business house to Texas, but ISS said it was in favor of the move.

In January, Delaware Chancellor Kathaleen St. Jude McCormick ruled that Musk is not entitled to the historic stock compensation that would be awarded over a ten-year period.

In a ruling on a shareholder lawsuit, she quashed the compensation package and said Musk essentially controlled the board, making the process of determining compensation unfair to stakeholders. “Musk had extensive ties to the individuals tasked with negotiating on Tesla’s behalf,” she wrote in her ruling.

In a letter to shareholders released in a regulatory filing last month, Tesla Chairman Robyn Denholm said Musk has delivered on the growth he sought from the automaker, with Tesla meeting all stock value and operating targets in the 2018 received the package. At the time, shares had risen 571% since the pay package began.

“Because the Delaware court questioned your decision, Elon has not been paid over the past six years for his work for Tesla, which helped generate significant growth and shareholder value,” Denholm wrote. “That seems to us – and the many shareholders we have already heard from – fundamentally unfair and contrary to the will of the shareholders who voted for it.”

Tesla posted record deliveries of more than 1.8 million electric vehicles worldwide in 2023, but the value of its shares has rapidly eroded this year as electric vehicle sales slow.

The company said it delivered 386,810 vehicles from January through March, down nearly 9% from the same period last year. Future growth is in doubt and getting shareholders to support a fat compensation package in an environment where global competition has increased may be a challenge.

Starting last year, Tesla has lowered prices on some models by as much as $20,000. The price cuts caused the value of used electric vehicles to drop and limited Tesla’s profit margins.

In April, Tesla said it would let go about 10% of its employees, about 14,000 people.