Tesla is weeks away from a monumental shareholder vote on CEO Elon Musk’s potential $1 trillion pay package deal at its annual investor assembly, and the EV-maker is pulling out all of the stops to push the measure by way of.
Final yr, Tesla rallied 1000’s of mom-and-pop retail traders to vote their shares of inventory in favor of Musk’s billions in pay. Now, Tesla is teeing up retail holders for an additional vote on Nov. 6 that will set Musk on the trail to changing into the world’s first trillionaire by granting him as much as 12% of Tesla’s excellent shares divided into 12 tranches by way of a restricted inventory grant. The primary tranche begins at $2 trillion and the ultimate tranche is $8.5 trillion. If he hits all of the targets within the plan, he’ll have introduced Tesla to a market cap of $8.5 trillion and his stake can be value greater than $1 trillion. A lot of the playbook for 2025 is just like 2024: a slick investor web site, a bevy of posts and engagement on X about how traders can vote shares on particular brokerage platforms, and even a particular video with Optimus humanoid robots explaining voting in between taking a sauna and overseeing platters of bagels and cream cheese.
Tesla is clearly dedicating assets to speaking with its particular person retail traders and informing them about the right way to vote, unbiased activist investor Michael Levin advised Fortune, a feat that’s tough to perform within the U.S. Given how Tesla pulled it off final yr, this yr’s vote to approve Musk’s new award isn’t almost as doubtful because it was in 2024, he stated. Plus, Tesla has the identical playbook to work from this yr.
“The result of 2024 gives a very strong clue about how 2025 will work out—and that passed with 72% of voters supporting it, and that’s pretty comfortable,” Levin stated. “This year, it’s sort of a version of the same thing: a comp plan going forward with these insane, ambitious goals, and people are fine with that and don’t mind him being a trillionaire.”
Hundreds of retail traders and Tesla loyalists have pledged their help in favor of Tesla and Musk’s stratospheric new pay plan, however a rising coalition of pension funds and Democratic state fiduciaries are talking out about what they see as pink flags: a comp package deal that’s too massive, an absence of independence on the board, and the potential for different founders and controlling CEOs to observe in Musk’s footsteps. The latter can be disastrous for an economic system that’s already tilted too favorably within the route of billionaires like Musk whereas workers writ massive are battling inflation and lackluster pay raises, sources stated.
“It’s not only the magnitude, it’s the way in which the pay package is sort of a ransom aimed at shareholders,” New York Metropolis Comptroller Brad Lander advised Fortune. “It’s a megalomaniacal trip of bizarre proportions that is all about Elon’s ego and not about the financial health of the company or its stakeholders and shareholders.”
Lander, who signed a letter with different traders urging shareholders to vote towards Musk’s pay plan and to oppose the reelection of three Tesla board members, oversees greater than a $1 billion invested in Tesla on behalf of New York Metropolis’s pension funds.
Equally, New York State Comptroller Thomas P. DiNapoli, who oversees about $1.4 billion invested in Tesla on behalf of the state’s pension funds, known as Musk’s pay “excessive,” and stated it “waters down the holdings of other shareholders, and gives a captive board unwarranted discretion.” DiNapoli stated he plans in coming weeks to foyer different traders to vote towards the plan and all administrators with reelection bids on the board.
The vote might be a pivotal second—not only for Tesla, however for all those that oversee invested property on behalf of shareholders and retirees, New Mexico State Treasurer Laura Montoya advised Fortune.
“If we don’t hold them accountable you’re going to have so many others who are going to try and follow suit,” Montoya stated. “This is a precedent that could be damaging to our economy, not just today and tomorrow but in our children’s future.”
Two compensation proposals at Tesla
The Tesla assembly agenda contains investor votes on 14 proposals, however the two which are keenly related to Musk’s compensation embrace a proposal to approve his 2025 CEO efficiency award, and a second proposal that would come with the creation of a particular reserve of 208 million fairness shares for Musk. The vote authorizing extra shares will even replenish the fairness pool of 60 million shares out there for workers and administrators that firms usually use to compensate executives.
“All the action is in those two proposals,” stated Levin, who holds small funding in Tesla and plans to oppose the pay proposals.
The pay plan up for a vote this yr comes after a Delaware choose rescinded Musk’s earlier moonshot award in January 2024, a call that prompted Tesla to carry an investor vote to ratify his pay package deal a second time in 2024 and to authorize a transfer from being included within the state of Delaware to Texas. The 2024 ratification vote and the transfer to Texas had been huge victories for the EV maker, although the identical Delaware choose rescinded Musk’s pay package deal a second time following the vote.
Since then, the Tesla board has given Musk an interim award of 96 million shares of restricted inventory valued at about $24 billion. Musk’s proposed 2025 award includes the CEO hitting each market capitalization and operational targets that might doubtlessly see Tesla attain a market cap of $8.5 trillion if Musk efficiently unlocks all 12 tranches. He’ll have to stay round at Tesla for no less than 7.5 years and as much as 10 years for his shares to vest.
The board claimed throughout negotiations that Musk “raised the possibility that he may pursue other interests” if he doesn’t receives a commission for his previous work at Tesla and obtain no less than a 25% voting curiosity within the firm. The brand new award requires him to “participate in the board’s development of a framework for long-term CEO succession,” one of many provisions states. All advised, Musk may grow to be the world’s first trillionaire and he would maintain 28.8% of Tesla if he hits all of the targets within the moonshot plan. He would additionally grow to be the primary and solely CEO to hit a moonshot hat trick—three back-to-back pay packages.
The Tesla board advised traders the pay package deal is essential to maintaining Musk targeted on Tesla and motivated to develop the corporate.
“In light of the AI talent wars, Tesla’s internal efforts to develop and expand its product offerings within the AI industry, the absence of a comprehensive plan to address the compensation that remains outstanding for Musk’s past performance, and the lack of any go-forward incentive to motivate Musk to keep his focus aimed at Tesla long enough to achieve meaningful results that will transform Tesla over the long-term, we believe there is a pressing need to retain and incentivize Musk immediately,” the board advised traders final month.
Pension funds struggle again
Of their criticisms, pension funds and Democratic state fiduciaries are taking goal not solely on the measurement of Musk’s potential pay package deal however the Tesla board, chaired by Robyn Denholm. Pension leaders have stated Denholm and the board are letting traders down by failing to correctly oversee and problem Musk when wanted and be sure that he stays targeted on Tesla.
“In our view, the board’s failure to limit Mr. Musk’s outside endeavors while rewarding him with unprecedented pay packages for only a part-time commitment strongly indicates a lack of true independence by management and jeopardizes long-term shareholder value,” states a letter from SOC Investor Group signed by a dozen fiduciaries and traders. “The board has permitted Mr. Musk to be overcommitted for years, allowing him to continue as CEO while taking time-consuming leadership roles at his other companies, xAI/X, SpaceX, Neuralink, and Boring Company.”
The letter famous that the extent of compensation paid to the Tesla board members may additionally compromise the board’s impartiality. Common comp paid to S&P 500 board members in 2024 was $327,096, the letter states. Denholm’s common compensation per yr has been $62 million. Denholm has repeatedly denied that her objectivity has been clouded by the wealth she’s made promoting Tesla inventory over time.
Nonetheless, some traders are planning to ship a message to the board by voting towards the three administrators up for reelection this yr: Ira Ehrenpreis, Joe Gebbia, and Kathleen Wilson-Thompson.
Maryland Comptroller Brooke Lierman advised Fortune her issues about Tesla as a fiduciary had been based mostly on the board’s governing observe document and the shortage of accountability by administrators overseeing Musk in his position as CEO.
“This is one of those circumstances where somebody has to say, ‘Enough is enough,’” stated Lierman.
The retail wildcard
Regardless of the organizing by pension funds, the battle to sway the vote is an uphill climb, though that’s no purpose to not communicate out, famous Lierman. Tesla seems positioned to win approval of Musk’s new moonshot pay plan based mostly on Musk’s possession, the voting historical past of huge institutional traders, and the corporate’s observe document with particular person holders.
FGS International, a technique agency working with Tesla, confirmed to Fortune that shares owned by Musk—and his brother and board colleague Kimbal Musk—could be voted for the 2 key comp proposals. Which means, there isn’t any majority-of-minority requirement, a company governance mechanism the place a transaction or proposal must be permitted by a majority of shareholders who should not concerned within the transaction. At the moment, Musk holds about 20% of the corporate and Kimbal Musk holds about 1.5 million shares, lower than 1% of Tesla’s excellent inventory. As well as, massive institutional traders BlackRock and Vanguard maintain near 13% of Tesla between them, and each voted in favor of Musk’s pay ratification in 2024.
In keeping with FactSet, retail shareholders equate to roughly 34% of excellent shares. Final yr’s ratification vote noticed 72% of all votes forged in approval of his pay, which excluded shares linked to Musk and his brother.
Given the extent of insider management plus Tesla’s command over its retail base, proxy advisory companies like ISS and Glass Lewis aren’t going to be a determinant even when they advocate traders oppose the pay proposals, stated Levin. Equally, BlackRock and Vanguard don’t disclose their votes prematurely, however they might not be a lot of a problem even when they all of a sudden reverse course on Musk’s pay this yr versus final yr.
Nonetheless, Musk is unlikely to depart something to probability, stated Levin, given his possession stake in Tesla.
And if Musk left Tesla it could be horrible for traders; the inventory would probably instantly plummet. “Maybe it’s a risk this board doesn’t want to take,” stated Levin. “But I think the cost of avoiding that risk is way too high—it’s a trillion dollars of equity.”
Tesla’s shareholder assembly is slated to happen on Nov. 6 at its headquarters in Austin, Texas.
