Large Institutional Investors Rally Against Tesla Pay Package

At its June 13 shareholder meeting, Tesla shareholders will vote on several management proposals, including reincorporating the company in Texas and a $56 billion performance-based stock option package to chief executive Elon Musk.  

However, many large institutional investors are planning to vote against the proposals.  

Among those voting no is Norges Bank Investment Management, the $1.6 trillion sovereign wealth fund of Norway. NBIM, which holds a 0.98% stake in Tesla worth roughly $7.319 billion, will vote in favor of other management proposals, including the election of James Murdoch and Kimbal Musk to the Tesla board and reincorporating the company in Texas.  

“While we appreciate the significant value generated under Mr. Musk’s leadership since the grant date in 2018, we remain concerned about the total size of the award, the structure given performance triggers, dilution, and lack of mitigation of key person risk. We will continue to seek constructive dialogue with Tesla on this and other topics,” NBIM writes on its website. 

In 2018, Tesla shareholders overwhelmingly approved the pay package with 73% voting in favor, which was dependent on the company meeting certain milestones. In February, the Delaware Chancery Court voided the package, but Tesla will try again on Thursday to pass it.  

The California State Teachers’ Retirement System is also among those voting no for the package. With $332.5 billion in assets under management, the fund holds 4,694,914 million shares of Tesla, worth approximately $1.229 billion. Among CalSTRS’ concerns are that the pay package could be dilutive to existing shareholders.  

“At CalSTRS, we cast proxy votes in support of corporate board members and resolutions that align with our interests and philosophy. We plan to vote against Elon Musk’s proposed pay package based on its sheer magnitude, and because the award would be extremely dilutive to shareholders. We also have concerns with the lack of focus on profitability for the company,” said Aeosha Mastagni, senior portfolio manager at CalSTRS, in a statement provided to CIO.  

In May, New York City Comptroller Brad Lander, on behalf of the NYC pension system along with seven other asset owners, spoke against the pay package in a letter. “Tesla is suffering from a material governance failure which requires our urgent attention and action. As such, it is critical that shareholders reject Proposal 1, the renomination of Kimbal Musk and James Murdoch to the Board, and Proposal 4, ratification of the 2018 Pay Package, at the upcoming annual meeting of shareholders,” the letter stated.  

Norwegian pension fund KLP is also among large institutional funds voting against the proposed pay package. 

“At Tesla’s general meeting, we will vote against, among other things, Elon Musk’s salary package. The background is that a salary of almost NOK 500 billion has been proposed by the board, which we believe is disproportionately high and comes at the expense of the shareholders. We recognize that the company has delivered good results in recent years, but it is important to remember that executive salaries must have an acceptable limit and must be assessed in the context of compensation in other similar companies. Such high wages can have a negative impact not only on shareholders, but also drive an unfortunate development in the market, ” says Kiran Aziz, head of responsible Investments at KLP. 

CalPERS, which owns approximately 9.7 million shares of Tesla also plans to vote against the package. “This exorbitant compensation package is at odds with CalPERS’ longstanding views on executive pay,” said CalPERS CEO Marcie Frost in a press release on June 12th. “The compensation is excessive when compared to executives at peer companies, highly dilutive to shareholders, and isn’t tied to the long-term profitability of Tesla.”

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