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Proxy Adviser Raises Red Flags Over Unprecedented Pay Package
Institutional Shareholder Services (ISS), one of the most influential proxy advisory firms, has recommended that Tesla investors reject Elon Musk’s proposed $1 trillion compensation package, calling the scale of the potential award “astronomical” and raising concerns about governance issues. The recommendation comes just weeks before Tesla’s November 6 annual meeting, where shareholders will decide on what would be the largest corporate pay package in history.
ISS highlighted that while the performance targets are ambitious and could create significant shareholder value if achieved, the sheer magnitude of the award and its structural design present “unmitigated concerns.” The firm specifically noted the absence of binding terms to ensure Musk remains focused on Tesla amid his numerous other ventures, including SpaceX, xAI, Neuralink and The Boring Company.
The Mechanics of Musk’s Potential Windfall
Under the proposed compensation structure, Musk would receive no salary or cash bonuses but would instead earn shares in installments tied to specific performance milestones. These include increasing Tesla’s market value from its current $1.38 trillion to $8.5 trillion – nearly double Nvidia’s current valuation as the world’s most valuable company. Additional targets require a 24-fold increase in adjusted earnings to $400 billion and the successful commercialization of millions of vehicles, robotaxis and AI-powered robots.
The maximum payout of 423 million shares would represent one of the most ambitious compensation structures ever proposed. As proxy advisory firms continue to scrutinize executive compensation packages, this recommendation highlights growing concerns about governance standards in high-growth technology companies.
Governance Concerns Take Center Stage
ISS expressed particular concern about the lack of provisions ensuring Musk’s continued focus on Tesla. “There are no prescriptive elements within the award to ensure his focus and time remain on Tesla as opposed to his other ventures, undermining the award’s primary rationale,” the firm stated in its report.
The proxy adviser also recommended against reelecting Ira Ehrenpreis, chair of Tesla’s governance committee, citing his “unilateral” adoption of a bylaw that “materially restricts shareholders’ litigation rights.” This governance scrutiny comes amid broader industry developments where regulatory compliance and shareholder rights are receiving increased attention.
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Board Defense and Historical Context
Tesla’s board, led by chair Robyn Denholm, has been actively lobbying large shareholders to support the package. Denholm has defended the proposal by describing Musk as a “generational talent” who would need to expend “time, energy and effort beyond what most humans can do” to achieve the targets.
This isn’t the first time ISS has opposed Musk’s compensation. Last year, both ISS and Glass Lewis advised against reinstating Musk’s $56 billion 2018 pay package after it was invalidated by a Delaware judge. Despite that opposition, shareholders overwhelmingly supported the company with more than three-quarters voting in favor.
The current debate occurs against a backdrop of significant market trends in technology compensation, where executive pay packages have grown increasingly complex and tied to ambitious performance metrics.
Stakes Extend Beyond Compensation
Musk has indicated that gaining greater control of Tesla is crucial to his continued involvement with the company. If the package is approved, his ownership stake would increase from approximately 16% to at least 25% after accounting for taxes and dilution. The CEO has suggested he might leave Tesla without greater control, citing the need to protect the company from activists or hostile takeovers as it develops advanced AI and robotics technology.
This situation reflects broader related innovations in corporate governance where technology leaders are seeking increased control over their companies’ strategic direction, particularly in emerging technology sectors.
Shareholder Decision Looms
As the November 6 vote approaches, Tesla investors face a complex decision: reward Musk for past performance and incentivize future growth while accepting unprecedented dilution, or heed governance concerns from independent advisers. The outcome will not only shape Tesla’s future leadership but could set new precedents for executive compensation across the technology sector.
With ISS noting that “billions can be earned for just partial goal achievement,” the debate highlights the ongoing tension between incentivizing visionary leadership and maintaining sound corporate governance practices in high-growth technology companies.
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