KEY TAKEAWAYS

• Tesla will hold its annual shareholder meeting on Thursday, with investors voting on whether to reapprove CEO Elon Musk’s $55.8 billion pay package.
• The compensation plan was approved by investors in 2018, but was struck down by an equity court earlier this year that sided with an investor who sued Tesla, claiming Musk’s compensation was excessive.
• The decision could affect Musk’s ranking among the world’s richest people, as well as Tesla’s stock price, with analysts at Jefferies and Piper Sandler warning a rejection of the pay package could send Tesla shares lower.

Tesla (TSLA) is set to hold its annual shareholder meeting on Thursday, with investors voting on whether to reapprove CEO Elon Musk’s $55.8 billion pay package.

The compensation plan was approved by investors in 2018, but was struck down by an equity court earlier this year that sided with an investor who sued Tesla, claiming Musk’s compensation was excessive.

The decision could affect Musk’s ranking among the world’s richest people, as well as Tesla’s stock price, with analysts at Jefferies and Piper Sandler warning a rejection of the pay package could send Tesla shares lower.

Proponents Say Elon Musk ‘Earned His Pay’

Under the plan approved by investors in 2018, Musk’s $55.8 billion pay package was contingent on Tesla’s market cap reaching $650 billion, and certain revenue and profitability goals being achieved. Tesla said the plan incentivized Musk “to deliver transformative and unprecedented growth.”

“In under six years, Elon delivered a total shareholder return of nearly 1,100%,” Tesla said in a letter to shareholders last month, citing FactSet data from March 21, 2018 to year-end 2023. “If Elon failed to achieve unprecedented growth targets for Tesla, he would receive ZERO compensation. He did not fail.”

Baron Capital founder and CEO Ron Baron said Musk “earned his pay” in an open letter to other Tesla investors ahead of the vote.

“Shareholders should ask themselves this question: is Tesla better off with or without Elon[?]” Baron wrote, adding “At Baron Capital, our answer is clear, loud, and unequivocal: Tesla is better with Elon. Tesla is Elon.”

Tesla also highlighted support from major firms including T. Rowe Price, Baird, and Egan-Jones, as well as notable names like Warren Buffett and Jim Cramer.

Proxy Advisors Join Those Recommending Against Reapproval

Some of those opposing Musk’s pay package notably include Norway’s sovereign wealth fund, the world’s largest sovereign wealth fund, and the California State Teachers’ Retirement System (CalSTRS), the second-largest pension fund in the U.S. Proxy advisors that could influence passive votes have also recommended voting against the compensation plan.

Proxy advisor Glass Lewis said, “Where the financial benefits are de minimis and there is a decrease in shareholder rights, we will recommend voting against the transaction.”

They said, “approval of the Redomestication would likely result in litigation alleging that shareholders’ rights are being improperly weakened” as Musk is already the top Tesla shareholder, which could raise concerns about checks and balances within the company. Institutional Shareholder Services (ISS) also recommended investors vote against the compensation plan.

Bernstein analysts, which gave Tesla stock an “underperform” rating, said they “believe that Elon Musk’s $56B pay package is unlikely to pass the shareholder vote,” given the lack of proxy advisor support.

The analysts noted that “~25% of eligible voting shares are held by either passives, who are likely to follow the ‘no’ recommendation of ISS/Glass Lewis, or institutionals who have publicly announced their intention to vote no.”

How the Vote Could Affect Tesla’s Stock Price

Jefferies analysts indicated that shareholders rejecting the proposal would be a negative for the business and stock. “However ill-designed the scheme was, we believe denying Elon Musk his past compensation would look like misplaced ‘buyers remorse.'”

Piper Sandler analysts echoed a similar sentiment, saying that a rejection of the compensation plan could send shares lower.

Bernstein analysts said that “if the pay package is rejected, the stock would likely be down (potentially 5%+) amid fears that Musk might leave Tesla. If the vote passes, we expect the stock would have a positive response, but likely more muted.”

Tesla shares rose nearly 4% to close at $177.29 Wednesday, a day ahead of the company’s shareholder vote. They have fallen over 28% since the start of the year amid concerns about the company’s growth.