Elon Musk SpaceX
Tesla shareholders to vote on Musk's pay package again, rejected by court earlier. Proxy advisor Glass Lewis recommends against it. Wikimedia Commons

Proxy advisory firm Glass Lewis urged Tesla shareholders on Saturday to reject a record-breaking $56 billion pay package for CEO Elon Musk.

Glass Lewis' report criticised the pay package for its excessive size, potential to dilute shareholder ownership upon stock option exercise, and the concentration of power it would grant Musk.

The report also raised concerns about Musk's divided focus due to his "slate of extraordinarily time-consuming projects," which recently included the acquisition of X (formerly known as Twitter).

"Mr. Musk's slate of extraordinarily time-consuming projects unrelated to the Company was well-documented before the 2018 grant and only expanded with his high-profile purchase of the company now known as X," said Glass Lewis in the report (via Bloomberg).

Dueling Recommendations on Musk's Compensation

Criticised for its close relationship with CEO Elon Musk, Tesla's board of directors proposed the controversial pay package. The performance-based plan offers no salary or cash bonus; instead, it rewards Musk with stock options if Tesla's market value reaches $650 billion within the next decade. According to LSEG data, Tesla's current market valuation is roughly $571.6 billion.

Legendary short seller Jim Chanos slammed Musk's attempt to tighten his grip on Tesla, accusing him of jeopardising the company's progress unless his voting rights were doubled. This comes after a Delaware judge, Kathaleen McCormick, struck down the original pay package in January.

The court's decision threatened Musk's reign as the world's richest person, prompting him to relocate Tesla's incorporation from Delaware to Texas.

Glass Lewis threw cold water on Tesla's proposed move to Texas, citing "uncertain benefits and additional risk" for shareholders. Tesla, however, is urging shareholders to back the compensation plan.

Tesla's board chair, Robyn Denholm, recently spoke to the Financial Times, defending Musk's compensation package. She cited the company's achievement of ambitious revenue and stock price targets as justification for the award.

Glass Lewis' recommendation could sway the vote of large institutional investors at Tesla's upcoming June 13 annual meeting, potentially derailing Musk's proposed pay package. If the proposal fails, Musk has hinted he might follow through on threats to develop products outside of Tesla.

Tesla Shareholders Face Key Votes on Pay, Relocation, and Board

Shareholders will vote on Elon Musk's pay package for the second time next month. A Delaware judge struck down the original 2018 compensation plan earlier this year. A successful shareholder vote could bolster Tesla's appeal of the court ruling by demonstrating continued support for the compensation plan.

Conversely, a defeat would significantly blow the company's image, potentially signalling investor dissatisfaction with Musk's leadership. However, it's important to note that the vote is non-binding, meaning Tesla retains the right to disregard it.

When a similar pay package for Elon Musk was proposed six years ago, it garnered approval from roughly three-quarters of investors. However, proxy advisory firm Glass Lewis dissented, urging shareholders to reject the deal due to its excessive cost and potential dilution of ownership for other shareholders.

To counter criticism of Musk's pay plan, Tesla has launched a multi-pronged campaign to secure shareholder approval. Denholm personally engages with major institutional investors, while a dedicated 'Vote Tesla' website targets the company's loyal retail shareholder base.

Tesla's shareholder vote next month tackles more than just Musk's pay. The company is also proposing a relocation from Delaware to Texas, which Glass Lewis recommends rejecting alongside the re-election of board member Kimbal Musk, Elon Musk's brother.