Tesla shareholders approve CEO Musk's $2.6 billion compensation plan




Musk speaks at a press conference following the first launch of a SpaceX Falcon Heavy rocket in Cape Canaveral
Musk speaks at a press conference following the first launch of a SpaceX Falcon Heavy rocket in Cape Canaveral  

By Alexandria Sage and Ross Kerber

SAN FRANCISCO/BOSTON (Reuters) - Tesla Inc shareholders approved a compensation package potentially worth $2.6 billion for Chief Executive Elon Musk on Wednesday in a test of their confidence in the leader of the electric car company.

A Tesla spokesperson confirmed that shareholders had approved the measure at a special shareholder's meeting in Fremont, California, but did not disclose the number of votes for or against.

Tesla's general counsel, Todd Maron, indicated at the meeting that Musk's pay was strongly supported by investors, a person who attended the meeting told Reuters. A Tesla spokesperson declined further comment.

The proposed compensation award for the Silicon Valley billionaire, valued at $2.6 billion, involves no salary or cash bonus but sets rewards based on Tesla's market value rising to as much as $650 billion over the next 10 years.

The vote has been seen as a test of whether big investors are prepared to support such a large payout at the founder-led company.

The massive award, if achieved, surpasses anything previously granted to top U.S. executives, according to proxy advisory firm Institutional Shareholder Services.

"At $2.6 billion, the grant value is unprecedented and sets the new high-water mark for an individual executive equity award at a U.S. public company," ISS wrote last month, in a recommendation to vote against the package. ISS said its own valuation of the award was even higher, at $3.7 billion.

Shares of Tesla are down 19 percent from a year high reached in September. The Silicon Valley company has been facing pressure on multiple fronts, from a cash crunch and production delays to increasing competition from rivals, as well as growing concern that Musk is distracted by too many projects.

Compensation for the CEOs of large U.S. companies is typically approved by around 95 percent of votes cast in annual "say on pay" advisory votes. But Musk's potentially huge payout meant extra scrutiny at Wednesday's vote.

Tesla would likely regard any result above 70 percent support for Musk's compensation as a win, reflecting agreement from most investors, said compensation consultant Brent Longnecker.

"If they got that, they would breathe a sigh of relief," he said. A lower figure would likely lead Tesla to review its communications with shareholders, he added.


SOME OPPOSITION

Ahead of Wednesday's vote, a top investor in Tesla and a major proxy adviser offered opposing views on whether to support the compensation deal, which required majority approval from shareholders.

Musk's pay plan "is well aligned with shareholders' long-term interests," a spokesman for T. Rowe Price Group, Tesla's fourth-largest investor with about 6 percent of its shares, told Reuters on Wednesday, without saying which way the Baltimore fund firm would vote.

A smaller investor, the California State Teachers' Retirement System (CalSTRS), said it planned to vote no. CalSTRS is one of the nation's largest public pension plans but only the 59th largest investor in Tesla, with a 0.13 percent stake.

"Given the size of the award, we believe the potential dilution to shareholders is just too great. In addition, we have concerns about the lack of focus on profitability for the company, and the one profitability metric that is used excludes the cost of stock-based compensation," CalSTRS' Director of Corporate Governance, Anne Sheehan, said in a statement.

Musk could own as much as $55.8 billion in Tesla stock and more than a quarter of the electric car company in the next decade if he hits all targets of the new plan.

Under the proposed award, which involves stock options that vest in 12 tranches, Tesla's market value must increase to $100 billion for the first tranche to vest and rise in additional $50 billion increments for the remainder.

Tesla was valued at about $52.46 billion at Tuesday's closing price, according to Thomson Reuters data. Its shares have fallen nearly 12 percent since the pay plan was announced.

Tesla has been struggling to manufacture its Model 3 sedan - for which it holds about 500,000 advance reservations - and has repeatedly pushed back production timelines.

The company has been burning through cash and expects spending to rise this year, even as a host of upcoming projects demand attention and capital, including the new Tesla Semi and the Model Y crossover.

A wave of electric vehicles on the horizon from rivals are also adding pressure. Global automakers from Ford Motor Co to Volkswagen AG (VOWG_p.DE) are cumulatively investing $90 billion in electrification over the next five years, with luxury models from Audi and Tata Motors Ltd's Jaguar due this summer.


(Additional reporting by Rishika Chatterjee in Bengaluru; Editing by Sunil Nair and Bill Rigby)

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