For Tesla Inc. (NASDAQ:TSLA), this week’s shareholder meeting promises significant drama. On Thursday afternoon at its Giga Austin plant, Tesla will reveal the results of shareholder votes on several key issues, most notably CEO Elon Musk’s controversial compensation package. While Wall Street anticipates approval, the outcome remains uncertain.
In 2018, Musk was awarded an all-stock pay package valued at $56 billion. Earlier this year, a Delaware court invalidated this package, ruling that Tesla’s board did not act “in the best interests” of shareholders. Since then, Musk and Tesla’s board, chaired by Robyn Denholm, have been advocating for shareholder approval of a similar compensation package. Denholm even penned an open letter urging shareholders to back Musk’s pay.
“Fairness and respect require that we honor the commitment we made to Elon,” Denholm wrote. She emphasized the need to retain Musk’s attention and motivation for Tesla’s growth.
Economist and CEO pay expert Dean Baker criticized this approach, stating, “If the firm’s directors are not actively working to limit CEO pay, then no one is.”
Musk has hinted at his divided attention across his ventures, including SpaceX, X.com, and the Boring Company. Recently, reports surfaced that Musk diverted Nvidia (NASDAQ:NVDA) AI chips meant for Tesla to X.com. Musk defended the move, claiming Tesla lacked space to use the chips at the time.
Denholm acknowledged the risk of Musk focusing elsewhere, noting that “Elon does not have unlimited time” and could take his talents to other ventures.
Supporters argue that Musk’s presence is crucial for Tesla’s future. Billionaire investor Ron Baron called Musk the “ultimate ‘key man’ of key man risk,” while ARK Invest CEO Cathie Wood highlighted Musk’s alignment with shareholder interests.
Conversely, proxy adviser firms Glass Lewis and ISS recommended voting against Musk’s compensation, citing concerns about the award’s size and its dilutive effect. Norway’s $1.7 trillion sovereign wealth fund, Tesla’s seventh-largest shareholder, also opposed the package, pointing to issues with the award’s structure and performance triggers.
Despite the opposition, shareholders are expected to approve the package. Wedbush analyst Dan Ives predicted overwhelming reapproval, emphasizing that Tesla needs Musk’s commitment to AI initiatives. Ives maintained his Outperform rating and $275 price target for Tesla.
CFRA’s Garrett Nelson suggested the vote might be closer than expected, citing the board’s outreach efforts. He argued that Tesla’s high stock valuation is partly due to Musk’s innovation and warned that rejecting the pay package could increase uncertainty about the company’s future direction and leadership.
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