Proxy advisor Institutional Shareholder Services is advising Tesla Inc. Shareholders to reject Chief Executive Officer Elon Musk's $1 trillion pay package, presenting a possible hurdle as the board seeks to gather investor backing.
TL;DR
- ISS recommends Tesla shareholders vote against Elon Musk's $1 trillion compensation plan.
- ISS cited "unmitigated concerns" with the plan's magnitude and design, questioning retention guarantees.
- Tesla pushed back, urging shareholders to vote in line with the company's recommendations.
- Shareholders will vote on the package at Tesla’s annual meeting on Nov. 6.
This marks the second year in a row that ISS urged shareholders to vote against a pay package for Musk.
Elon Musk manages a network of five interconnected businesses: Tesla, SpaceX, XAI, Neuralink, and The Boring Company.
“Although one of the main reasons for this award is to retain Musk and keep his time and attention on Tesla instead of his other business ventures, there are no explicit requirements to ensure that this will be the case,” ISS wrote in the report, which was part of broader voting guidance it issued Friday. The proxy firm cited “unmitigated concerns” with the plan’s magnitude and design.
Tesla pushed back in a post on X that urged shareholders to vote in line with the company’s recommendations.
“ISS once again completely misses fundamental points of investing and governance,” the automaker said.
“It’s easy for ISS to tell others how to vote when they have nothing on the line.”
In September, Tesla's board put forth the highly anticipated and extraordinary compensation package, intended to encourage Musk's continued involvement with Tesla for the coming decade. To receive the complete compensation and further voting power, Musk must achieve several challenging targets, such as increasing the company's market worth to a minimum of $8.5 trillion and broadening its operations in cars, robotics, and robotaxis.
Musk's stake in the electric-vehicle manufacturer would reach a minimum of 25% with the issuance of these extra shares, as outlined in a proxy statement.
Musk has warned he might develop products independently of Tesla if his stake in the company isn't boosted, a crucial part of the newest pay package. Although he still holds the most shares in Tesla, he sold a substantial amount of his stock to finance his purchase of Twitter. The social media service, now called X, was bought by Musk's XAI in early 2024.
Shareholders will vote on the package at Tesla’s annual shareholders meeting, set for Nov. 6.
Institutional Shareholder Services (ISS) and similar advisory groups frequently influence shareholders, especially major institutions invested in passive funds. However, both ISS and its counterpart, Glass Lewis, advised shareholders to vote against Musk's 2018 compensation agreement, yet approximately 75% of investors ultimately backed the proposal.
A Delaware judge invalidated that proposal in 2024, determining Musk exerted excessive control and the board faced conflicts of interest. Musk subsequently pointed to the compensation disagreement as a factor in Tesla's relocation from Delaware to Texas.
Last year, the compensation package, whose worth fluctuates with the stock's value and presently exceeds $100 billion, underwent an advisory vote. Shareholders, who eventually endorsed the proposal, were requested to cast a second vote on the issue during Tesla's yearly shareholder gathering to show their support for the initiative.
In August, Tesla's board provided Musk with a temporary award, estimated at roughly $30 billion, intended to partly substitute the original compensation. This award would be revoked if Musk's initial pay plan is put back into effect.
Musk and Tesla resumed their legal fight to appeal the ruling, this time before the Delaware Supreme Court on Oct. 15.
Tesla’s board chair Robyn Denholm insisted no one but Musk can run the company in a September interview with Bloomberg.
ISS recommended against awarding Musk backpay he would have gotten under the 2018 plan.
The organization also advised shareholders to vote against a suggestion for Tesla to fund Musk's AI venture, XAI. Musk had previously spoken about this concept during an earnings call and on social media platforms.
“This is a highly unusual proposal both in terms of the request itself and the way it came to be on the ballot (after CEO Musk reportedly encouraged shareholders to submit proposals on this topic),” ISS wrote.
Following ISS's recommendations on Friday, Tesla utilized X to promote a video intended to galvanize shareholder backing for the compensation plan.