Proxy advisers slam $2.6 billion Musk package as investors shrug

Elon Musk: Won't vote his shares on the proposed $2.6 billion grant.

Tesla Inc.'s plan to give Elon Musk an equity award valued at $2.6 billion has drawn rebukes from the two major proxy-advisory firms even as some of the company's biggest investors say they support the proposal.

Institutional Shareholder Services Inc. recommended voting against the proposal, saying the extraordinary size couldn't be justified, according to a report Thursday from the proxy firm. Rival Glass Lewis & Co. also urged shareholders to reject the plan at Tesla's March 21 special meeting.

Baillie Gifford & Co. and T. Rowe Price Group Inc., meanwhile, which combined hold about 14 percent of the electric-car maker's stock, have voiced support for Musk's award, saying that it's well-aligned with performance and that Tesla's future success is closely tied to its CEO.

The disparity adds uncertainly to whether the board will secure the majority shareholder support it needs to make the grant. Reports from the two proxy firms are reviewed by most institutional investors and research suggests the recommendations can sway votes by as much as 25 percent. But Tesla's no ordinary company, and its visionary boss commands a loyal investor base.

"The only reason why Tesla is successful is because of this guy," said Ron Baron, founder of Baron Capital Management Inc., which owns more than 1.6 million shares in the Palo Alto, California-based company and signaled it will support the board's proposal.

A Tesla spokesman declined to comment.

The proxy advisers questioned the grant's size and whether Musk, who's already a billionaire and owns about 20 percent of Tesla, needs more equity to remain motivated. Glass Lewis pointed out that he could receive a big windfall even if only part of the award vested, while the requisite stock performance wouldn't necessarily beat the market by a wide margin.

"Many may question the reasonableness of billions of dollars in pay opportunity, no matter how demanding the performance requirements," ISS wrote. "Even when annualized, Musk's pay opportunity would dwarf that of nearly every CEO at the largest and most profitable public companies."

Tesla said in regulatory filings that the award was conceived with input from 15 of the firm's biggest shareholders, which expressed support for another iteration of a grant Musk received in 2012. That was linked to market value and development and production of EVs.

Risk factor

The new award, consisting of 20.3 million stock options, will vest in 12 increments if market-value thresholds and other financial targets are met. Each tranche equals about 1 percent of Tesla's outstanding shares.

The company's market value has to reach $650 billion for the award to fully vest -- roughly a 12-fold increase -- a growth trajectory that's made investors like Baillie Gifford and T. Rowe Price willing to see past a total payout for Musk that could balloon to more than $50 billion.

Some investors view the grant as a way to counter assumptions among certain analysts and short sellers that Tesla could run into trouble because of the attention Musk devotes to other ventures, including rocket company Space Exploration Technologies Corp. Tesla lists its dependence on Musk as a risk factor in securities filings.

Musk, 46, and his brother Kimbal Musk, who's a Tesla director, won't vote their shares on the grant.

Tags: Pay Tesla

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