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A prominent proxy advisory firm has recommended that Tesla shareholders vote against the $56 billion lucrative pay package awarded to CEO Elon Musk, setting the stage for a high-stakes showdown at the company's annual meeting next week. The extraordinary compensation plan could make Musk the richest man on the planet if all goals are met.
In a scathing report released Monday, Institutional Shareholder Services (ISS) called the pay package "unprecedented" and disproportionate, "effectively a go-private transaction for the world's most valuable corporation." The firm urged Tesla investors to reject the performance-based stock option award worth as much as $56 billion over the next decade.
"The pay [package] is so eye mercifully large that unless the company's projections prove extremely accurate, it will be impossible for Musk to earn... amounts contemplated and deserved for this amount," the ISS report stated. "Shareholders should not be expected to bear the costs of such a staggering potential transfer of corporate wealth."
The package, approved by Tesla's board in 2018 but not shareholders, allows Musk to earn stock options valued at $56 billion if Tesla's market capitalization reaches a staggering $650 billion and ambitious revenue and profitability targets are achieved. For comparison, the current record for the largest CEO compensation package belongs to Uber's Dara Khosrowshahi at $200 million when he joined the ride-hailing giant in 2017.
Supporters argue the pay structure properly aligns Musk's interests with those of shareholders and rewards him for delivering unrivaled growth since Tesla's 2010 IPO. Tesla is now the world's most valuable automaker by far, worth over $800 billion.
However, critics view the pay as excessively rich, even for Musk, whose gambles on Tesla's all-electric vehicles and innovations like autonomous driving technology transformed the industry. The billionaire entrepreneur already owns around 17% of Tesla's stock, a stake currently worth $176 billion.
Ric Marshall, executive director at activist investor SKAGEN Funds, has said the pay package is too generous. "Even if you hit all targets, it's just too high with grave concerns about misalignment," he told Reuters. SKAGEN plans to vote against the package.
While ISS's recommendations carry significant sway, the firm has come under fire before from Musk himself. After it urged shareholders to oppose his re-election to Tesla's board last year, citing his distraction from running Twitter, Musk lashed out in a tweet: "I don't think this particular firm's advice is awesome."
A separate leading proxy firm, Glass Lewis, has also suggested shareholders vote against Musk's pay plan at Tesla's May 16th annual meeting. But it remains to be seen whether investors will rebel against the mercurial billionaire who has delivered them enormous returns so far.
