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Proxy Advisor Takes Stand Against Unprecedented CEO Pay Package
Institutional Shareholder Services (ISS), one of the world’s most influential proxy advisory firms, has recommended Tesla investors reject a compensation plan that could grant CEO Elon Musk nearly $1 trillion in additional stock. The recommendation comes ahead of Tesla’s November 5 annual shareholder meeting and represents one of the most significant corporate governance challenges to Musk’s leadership in recent years.
The proposed “mega performance equity award” is designed to retain Musk long-term but has drawn sharp criticism for its scale and structure. ISS stated that while the performance targets “would create enormous value for shareholders” if achieved, “there are unmitigated concerns surrounding the special award’s magnitude and design.”
The Stakes: Largest CEO Compensation in History
If approved, Musk’s compensation package would be the largest ever awarded to a public company CEO. The plan could net Musk up to an additional 12% stake in Tesla, contingent on the company reaching a market capitalization of $8.5 trillion and achieving other ambitious performance goals. This comes as industry developments continue to shape corporate governance standards worldwide.
Tesla has strongly disagreed with the ISS recommendation, accusing the advisory firm of missing “fundamental points of investing and governance” in a post on X, the social media platform owned by Musk. The company noted that ISS had previously recommended against compensation that shareholders had already approved twice before.
Historical Context and Legal Challenges
This isn’t the first time ISS has opposed Musk’s compensation. The firm previously advised investors to reject a “ratification” of Musk’s 2018 CEO pay package, which was worth an estimated $56 billion at the time. That package was subsequently voided by the Delaware Court of Chancery, which ruled that Tesla’s board had improperly granted the compensation and that Musk had controlled the board process.
Musk has appealed that decision to the Delaware State Supreme Court, with opening arguments heard this week. The ongoing legal battle highlights the tension between innovative corporate structures and traditional governance frameworks.
Broader Governance Concerns
ISS also recommended that shareholders vote against several other Tesla proposals, including:
- Authorization for Tesla’s board to invest in xAI, Musk’s artificial intelligence company
- Reinstatement of Tesla board member Ira Ehrenpreis, a longtime friend of Musk
The advisory firm’s concerns extend beyond compensation to broader governance issues. In May, Tesla changed its corporate bylaws to limit shareholders’ ability to sue for breach of fiduciary duties, requiring that only shareholders owning at least 3% of company stock can bring derivative actions. These market trends in corporate governance are being closely watched by investors across sectors.
Musk’s Influence and Voting Power
Musk holds significant sway in the upcoming vote, controlling at least 13.5% of Tesla’s voting power according to recent disclosures. His ownership stake alone could be sufficient to secure approval for the compensation package. In September, Musk further increased his position by purchasing an additional $1 billion worth of Tesla shares.
The relationship between Musk and proxy advisors has been contentious. In 2023, Musk accused ISS and Glass Lewis of effectively controlling the stock market due to their influence with passive funds and baselessly compared ISS to a terrorist organization. These tensions reflect broader questions about related innovations in corporate oversight and shareholder rights.
Industry Implications and Shareholder Decision
The outcome of the November vote will have significant implications for corporate governance standards across the technology and automotive sectors. Tesla’s aggressive growth targets and Musk’s central role in the company’s strategy create a complex scenario for shareholders weighing the compensation proposal.
As third-quarter results approach and the shareholder meeting date nears, the debate highlights the ongoing tension between rewarding exceptional performance and maintaining robust corporate governance standards. The decision will test whether shareholders prioritize potential future returns against concerns about board oversight and executive compensation practices.
The final decision rests with Tesla shareholders, who must weigh ISS’s governance concerns against the potential for massive shareholder returns if Musk delivers on the ambitious performance targets.
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