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Proxy advisor ISS advised Tesla shareholders to vote against Elon Musk’s $56 billion pay compensation but supported a proposal to reincorporate the electric car maker in Texas, in a mixed result for the board before of its annual meeting next month.
“While fully recognizing the grant’s overcoming of performance hurdles and substantial growth in the company’s size and profitability, the value of the grant was considered outsized from the outset,” ISS said in a report Thursday.
The advice echoes that of fellow proxy Glass Lewiswhich said last week that the CEO’s stock option package, the largest in U.S. corporate history, was “oversized.”
Tesla’s board of directors has been lobbying investors to reaffirm the $56 billion award given to Musk in 2018, which was overturned by a Delaware judge in January over concerns about the board’s transparency and independence. The ruling led Musk to demand that the company leave the state.
ISS disagreed with Glass Lewis about the risks of moving to Texas from Delaware and offered “cautious” support. Although he recognized “the process undertaken by the board to reach a decision. . . leaves much to be desired” and that “Texas business courts are new and do not have a strong set of legal jurisprudence precedents,” ISS concluded, “it is not evident that shareholder rights would be materially harmed.”
Proxy advisor recommendations are important because they influence the decisions of institutional investors such as Vanguard, Capital Group, Norges and State Street, all of which are among the top 10 shareholders of tesla and who voted against the salary proposal in 2018. Although ISS and Glass Lewis also opposed the salary concession then, it was approved with 73 percent approval.
Tesla President Robyn Denholm has led the campaign to gain support for both proposals, responding that Musk does not receive any salary for his role and is entitled to the money after reaching ambitious revenue and stock price goals. She downplayed criticism that she and other directors were too close to the CEO as “rubbish” and “total nonsense.”
While winning the wage vote would not overturn Delaware’s decision, the automaker believes proof that shareholders still approve of the award could be decisive in subsequent legal appeals.
If Tesla is successful on June 13, Musk’s stake in the company will increase from 13 percent to more than 20 percent. A loss would damage the credibility of Denholm and the rest of the board and raise questions about Musk’s future at Tesla.
The tech billionaire has threatened to develop artificial intelligence products elsewhere if he does not gain greater control of the automaker, which he is repositioning as an artificial intelligence and robotics company.
Tesla also has to persuade thousands of retail investors around the world to vote in favor of the resolutions. They represent about 30 percent of the shares, an unusually high amount for a publicly traded company, and will be crucial to the outcome.
In the vote on salaries, a simple majority must be in favor, excluding shares owned by Musk and his brother Kimbal. Reincorporation in Texas has a higher bar, requiring a majority of all outstanding shares, because those not issued are counted as a “no.”
ISS also urged investors not to approve the re-election of former 21st Century Fox chief James Murdoch to the board of directors.