William Simpson
Tesla shareholders should reject CEO Elon Musk’s $56 billion pay package, according to consultancy Glass Lewis, which highlighted the “excessive size” of the deal and its potentially negative impact on smaller shareholders.
The recommendation from the influential proxy consulting firm comes as Tesla is asking its shareholders Vote again on your 2018 pay package after a Delaware judge earlier this year canceled the paymentwhich was the largest compensation plan in corporate America.
Tesla shareholders are expected to vote on the salary package on June 13. The company did not immediately respond to a request for comment on Glass Lewis’ recommendation to vote against the pay deal.
Institutional investors rely on proxy advisory firms to provide research and advice on how to vote during annual and special meetings on public company proxy proposals, which can range from executive compensation to corporate governance issues. In the case of Tesla, Glass Lewis wrote in a 71-page report shared with CBS MoneyWatch that Tesla shareholders risk share dilution if Musk receives the massive stock grant, meaning his shares could be worth less as a result.
The consulting firm also noted that Musk is well compensated for his current 12.9% stake in Tesla, a stake valued at about $74 billion, according to the Bloomberg Billionaires Index. Musk does not receive a salary from Tesla, but Glass Lewis noted that his shares in the company mean his interests are already aligned with those of the business.
The value of Musk’s current stake in Tesla “challenges the very basis that the 2018 grant, as structured and sized, was even necessary,” wrote Glass Lewis.
Dilution occurs when a company issues additional shares, which in turn reduces the proportionate ownership of pre-existing shares. Under the 2018 salary agreement for Musk, Tesla would issue about 304 million new shares, creating a dilution effect of about 9%, the company said.
“[T]These concerns are exacerbated by the concentration of ownership in Mr. Musk,” the report said, noting that Musk would increase his ownership stake to 22.4% if the 2018 pay package is approved next month. Musk would be the company’s largest shareholder by a healthy margin.”
It added: “Given the impact on the holdings of other shareholders, the continued concentration of ownership around Mr. Musk deserves special attention.”
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