One of the world’s largest investors has received advice to oppose Elon Musk’s unprecedented $56 billion bonus amidst an impending struggle at Tesla.
Vanguard, the second-largest shareholder in Tesla after Musk himself, is among the clients of the advisory service Glass Lewis to receive a report urging them to reject the proposed compensation package.
Glass Lewis has criticized the payment as “excessive,” cautioning that it could dilute the holdings of current investors and consolidate power in the hands of Mr. Musk.
This development precedes a crucial vote by Tesla shareholders on June 13, which could potentially jeopardize the company’s future.
Although investors initially approved the $56 billion payment in 2018, contingent on Mr. Musk meeting specific targets, a Delaware judge nullified the agreement in January of this year. The judge asserted that Tesla directors overseeing the package had not adequately informed shareholders, describing the deal as “unfathomable” and suggesting that the board had been swayed by Mr. Musk’s “superstar appeal.”
Glass Lewis noted on Saturday that the pay package had thus far failed to refocus Mr. Musk’s attention on Tesla, as he pursued other ventures such as his Space X rocket project and the acquisition of Twitter, which has now been rebranded as X.
The report stated: “Mr. Musk’s involvement in numerous highly demanding projects unrelated to Tesla was well-known even before the 2018 grant and has only increased with his prominent acquisition of the company now known as X.”
The report also observed that while it was unrealistic to expect constant focus from any individual, Tesla had become heavily dependent on Mr. Musk’s presence for its success. Moreover, the lucrative compensation package seemed ineffective in maintaining his focus.
It added that Mr. Musk’s ventures outside Tesla had drawn criticism and raised concerns about potential risks to shareholder value.
The world’s largest electric vehicle manufacturer could potentially disregard the results of next month’s advisory pay vote. However, if Tesla’s board can demonstrate that the deal continues to have broad support, it might strengthen its position in a legal appeal against the Delaware judgment. Mr. Musk has promised to relocate the company’s legal incorporation to Texas following the ruling.
Shareholders are set to vote on this issue at the annual meeting in two weeks. However, Glass Lewis has cautioned that the proposal carries uncertain benefits and potential risks for investors.
