We reported a few days ago on the news that the proxy advisory firm Glass Lewis has issued a recommendation to Tesla shareholders to vote against the new performance-based pay package being offered to CEO Elon Musk.
The other most prominent proxy advisory group out there, Institutional Shareholder Services (ISS), has now gone and followed suit, issuing a recommendation that Tesla shareholders reject the package being offered to Elon Musk.
The performance-based pay package in question leverages very difficult-to-achieve performance goals against very large (potential) stock grant awards for the Tesla CEO. It’s noteworthy here that the goals in question may well be unachievable, and that Musk would get nothing is he wasn’t to achieve any of them.
Perhaps more notable than that, though, is that if the goals were to be achieved, then Tesla stockholders would, far and away, be the primary beneficiaries, not Musk — in other words, the stock grants that Musk could earn would be far, far eclipsed by the additional value that has been “granted” to shareholders.
That being the case, the arguments used by ISS don’t seem very credible — not to me, at least.
The statement from the ISS argued that the pay package “locks in unprecedented high pay opportunities for the next decade, and seemingly limits the board’s ability to meaningfully adjust future pay levels in the event of unforeseen events or changes in either performance or strategic focus.”
That makes for an unconvincing argument to my ears, as the “pay” in question represents just a fraction of the shareholder value that would be created by the achievement of the goals in question. Opinions may vary, though.
The statement continued: “Musk’s financial interests are already strongly aligned with Tesla; it is questionable whether an additional $2.6 billion grant is necessary or appropriate to further align his interests when he already owns a 22% stake in the company.”
Reuters provides more: “The advisory firm also flagged that a big part of the award could be earned even if Tesla, which reported its worst ever loss in the fourth quarter, does not sustainably make profits in the future.
“The compensation arrangement announced in January involves no salary or cash bonus but sets up rewards for Musk based in part on electric vehicle maker Tesla’s market value rising to $650 billion over the next 10 years, from around $56 billion currently.”
As it stands, shareholders voting in person will do so on March 21st. We’ll keep you posted on the outcome.
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