Elon Musk drama intensifies as Tesla shareholders vote on his $56B pay package deal: Here is what’s at stake

At present Tesla shareholders will lastly reply a $56 billion query hanging over the corporate: Can CEO Elon Musk hold his record-breaking pay?

Whereas Musk posted late Wednesday night time that the votes were trending for passage of his pay package deal, official phrase will not come down till later right now — although Tesla shares are leaping within the pre-market.

Securing Musk’s compensation, if actually handed by traders, didn’t come with no battle.

To evaluate: Musk’s all-stock pay package deal, awarded in 2018, has been embroiled in controversy and was struck down by a Delaware courtroom earlier this yr, with the choose discovering that Tesla’s board didn’t act “in the most effective pursuits” of Tesla shareholders by approving the $56 billion award.

Since then, Musk and Tesla’s board, led by chair Robyn Denholm, have been advocating reasonably forcefully for Tesla shareholders to approve a newly submitted pay package deal, which is similar to the unique 2018 award invalidated by the choose.

On the eve of these outcomes, Musk and Tesla are getting assailed from numerous fronts.

Late Tuesday the Staff’ Retirement System of Rhode Island (ERSRI) filed one other lawsuit in Delaware accusing Musk and his brother Kimbal Musk of promoting a mixed $30 billion of inventory utilizing inside data — that being the 2 knew the proceeds can be used to fund Elon’s buy of Twitter (now X), and that two brothers had been additionally conscious that Tesla’s automobile deliveries had fallen beneath projections.

LOS ANGELES, CALIFORNIA - APRIL 13: Elon Musk attends the 10th Annual Breakthrough Prize Ceremony at Academy Museum of Motion Pictures on April 13, 2024 in Los Angeles, California. (Photo by Axelle/Bauer-Griffin/FilmMagic)LOS ANGELES, CALIFORNIA - APRIL 13: Elon Musk attends the 10th Annual Breakthrough Prize Ceremony at Academy Museum of Motion Pictures on April 13, 2024 in Los Angeles, California. (Photo by Axelle/Bauer-Griffin/FilmMagic)

Will he get a increase? Tesla CEO Elon Musk is pictured on the Breakthrough Prize Ceremony on the Academy Museum of Movement Footage on April 13, 2024, in Los Angeles. (Axelle/Bauer-Griffin/FilmMagic) (Axelle/Bauer-Griffin through Getty Pictures)

In the meantime the Wall Avenue Journal reported Elon Musk has joined recent meetings with proxy adviser Glass Lewis, and traders together with “Vanguard, State Avenue and BlackRock, alongside Tesla Chair Robyn Denholm and others,” to drum up assist for Musk’s pay package deal.

If that wasn’t sufficient, the Journal additionally published an expose late Tuesday night alleging Musk had quite a few inappropriate relationships with workers at SpaceX, the rocket and spaceship firm Musk based and nonetheless serves as CEO.

Then individually on Wednesday eight former SpaceX workers filed a lawsuit towards Musk for sexual harassment and retaliation in California state courtroom, alleging that Musk created an “unwelcome hostile work atmosphere” based mostly on his conduct, amongst different allegations.

The continued drama across the vote has been constructing for weeks now. The battle to get Musk’s pay package deal handed picked up steam final week when Denholm submitted an open letter urging shareholder approval of Musk’s compensation package deal.

“Equity and respect require that we honor the collective dedication we made to Elon — a dedication that was, and basically nonetheless is, about retaining Elon’s consideration and motivating him to concentrate on reaching astonishing development for our firm,” Denholm wrote in her letter.

Denholm’s alternative of phrases — “retaining Elon’s consideration and motivating him” — raised eyebrows, as most impartial board chairs usually don’t pen open letters urging shareholder approval of administration pay packages, not to mention claiming the compensation is required to maintain the CEO motivated.

Even earlier than the 2018 pay package deal was invalidated by the Delaware courtroom, Musk threatened shareholders about his divided consideration, as he’s in cost or spends vital quantities of time at SpaceX, X.com (previously Twitter), and the Boring Co., amongst different ventures.

“I’m uncomfortable rising Tesla to be a frontrunner in AI & robotics with out having 25% voting management. Sufficient to be influential, however not a lot that I can’t be overturned,” Musk said from his X account in January. “Until that’s the case, I would like to construct merchandise outdoors of Tesla.”

Living proof: Tesla lately needed to cope with reviews that Musk ordered Nvidia (NVDA) AI chips meant for Tesla to be diverted to X.com. Musk defended the transfer after the report’s launch, claiming Tesla lacked house to make use of the chips, and they’d have sat in a warehouse in any other case.

Musk additionally simply withdrew his lawsuit towards ChatGPT-maker OpenAI forward of a listening to on Wednesday, giving no clarification for it. Musk’s enterprise xAI is straight competing with OpenAI, amongst others.

Musk’s AI and robotics risk, odd strategic strikes and backtracks, and his own advocacy for his pay package have shareholders involved that he will not care as a lot about Tesla if he doesn’t get what he needs. Denholm even acknowledged as a lot, claiming there are “different locations” Musk may take his time and vitality.

“What we acknowledged in 2018 and proceed to acknowledge right now is that one factor Elon most definitely doesn’t have is limitless time. Nor does he face any scarcity of concepts and different locations he could make an unbelievable distinction on the earth,” she wrote.

Musk supporters have doubled down on the argument that his presence is critical for the way forward for Tesla.

Longtime Tesla shareholder Baillie Gifford stated it should vote in favor of Musk’s package deal, in accordance with Bloomberg sources, with the reasoning being the package deal was aligned with shareholder returns.

“Elon is the final word ‘key man’ of key man threat,” billionaire Tesla investor Ron Baron wrote final week in an open letter. “With out his relentless drive and uncompromising requirements, there can be no Tesla.”

“I’d argue that no different government is as aligned with shareholders as @elonmusk who dedicated to no wage, no bonus, no inventory comp FOR 10 YEARS, except he created great worth for @Tesla shareholders,” ARK Make investments founder and CEO Cathie Wooden posted on X late final week.

Cathie Wood, chief executive officer and chief investment officer, Ark Invest, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)Cathie Wood, chief executive officer and chief investment officer, Ark Invest, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

Musk fan: Cathie Wooden, chief government officer and chief funding officer at Ark Make investments, speaks throughout the Milken Institute International Convention in Might in Beverly Hills. (PATRICK T. FALLON/AFP through Getty Pictures) (PATRICK T. FALLON through Getty Pictures)

Conversely, proxy adviser agency Glass Lewis urged shareholders to vote towards Musk’s compensation, arguing that the “extreme dimension” of the award and the dilutive impact of it on current shareholders had been main issues. ISS, the opposite main proxy adviser agency, advisable that shareholders vote down the package deal as nicely.

Whereas a few smaller shareholder groups got here out towards Musk’s pay package deal, one huge one weighed in towards Musk over the weekend — Norway’s $1.7 trillion sovereign wealth fund.

“We stay involved concerning the whole dimension of the award, the construction given efficiency triggers, dilution, and lack of mitigation of key particular person threat,” Norges Financial institution Funding Administration (NBIM), the operator of the fund, said.

The fund, which additionally opposed Musk’s pay package deal in 2018, holds a $5.6 billion stake encompassing 31.57 million shares, or 0.99% of all shares excellent, making it Tesla’s seventh-largest shareholder, per Capital IQ.

And earlier this week, the California State Lecturers’ Retirement System (CalSTRS) additionally stated it should vote towards Musk’s pay package deal, with the pension fund’s chief funding officer telling CNBC the inventory awards had been “ridiculous.” CalSTRS owns round 4.7 million shares of Tesla.

Different giant funds that personal the biggest Tesla stakes — Vanguard, BlackRock, and State Avenue, amongst others — haven’t commented on Musk’s pay package deal.

The drama could possibly be a lot ado about nothing when the votes are counted, nevertheless, with shareholders anticipated to present Musk what needs.

“[Musk’s pay package] has been an space of scorching button rivalry amongst some traders however we might count on the 2018 package deal can be overwhelming [sic] reapproved,” Wedbush analyst Dan Ives predicted in a word to traders late final week.

Whereas approval of the pay package deal will take away one “overhang” on Tesla inventory, Ives believes Tesla wants Musk greater than ever to navigate the corporate by way of a vital time.

“Musk must commit all AI initiatives can be below the Tesla hood and can be not be separated,” Ives stated, reiterating his Outperform ranking and $275 worth goal.

CFRA’s Garrett Nelson believes the vote can be nearer than anticipated.

“Clearly, the Board is worried concerning the vote given its shareholder outreach efforts,” Nelson stated in an announcement to Yahoo Finance, writing that the vote will doubtless are available beneath the 73% approval the plan obtained in 2018.

Nelson added: “We have now lengthy argued that one of many main causes the inventory trades at such an enormous premium to the remainder of the business is the innovation of Musk. If the pay package deal had been to be voted down, it may improve uncertainty concerning the longer term route and management of the corporate.”

Pras Subramanian is a reporter for Yahoo Finance. You possibly can observe him on Twitter and on Instagram.

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