Elon Musk is taking on Tesla ‘oath breakers’ in the fight for his $56 billion pay package

The fight over Tesla CEO Elon Musk’s massive pay package is heating up.

On June 13, Tesla shareholders will decide the fate of Musk’s compensation package, which is estimated to be worth up to US$56 billion. It will be the second time shareholders have voted on CEO compensation, after a Delaware judge overturned the first earlier this year, saying the approval process was “deeply flawed.”

And Musk doesn’t want to leave anything to chance. He is pressuring shareholders on his X social media platform, offering private tours of the Tesla factory in Texas, and attacking those who suggest the proposed salary package is too high. The proposed pay package would make Musk the highest-paid CEO in the world.

“They are oathbreakers,” he wrote in X in response to a post mocking shareholders who said they plan to vote against Musk’s compensation.

Meanwhile, several leading proxy advisory firms have recommended voting against the proposal, arguing that it is too excessive and would dilute value for individual shareholders.

“The excessive size of the award, both on a pure dollar basis and in terms of the dilutive effect on exercise, remains a priority,” wrote proxy firm Glass Lewis in a recent report. “The justification provided by the Company does little to combat these concerns, given their proportional magnitude.”

Institutional Shareholder Services, another proxy firm, also advised against the payment proposal for similar reasons, according to Reuters.

The vote is seen as a referendum on Musk’s leadership at a critical time for Tesla. The company’s electric vehicle sales have fallen as demand fluctuates in the face of cheaper and more plentiful offerings from other automakers. Tesla’s vehicle lineup is aging and the prospects for a cheaper, more mass-market EV are uncertain. The company’s share price has fallen nearly 30% since the beginning of the year. Tens of thousands of employees were laid off, including most of the Tesla Supercharger team.

Amid all this uncertainty, Musk is pushing for more control over Tesla, arguing that he needs at least a 25% stake to steer the company toward a future dominated by artificial intelligence and robotics. (He currently owns about 13% of the company after selling billions of dollars in stock to acquire Twitter.) At X, he threatened to spin off Tesla’s AI work into a separate company if his demands aren’t met.

Tesla shareholders first approved Musk’s compensation in 2018, granting him an additional 12% stake in the company over several years as long as he met certain benchmarks. These benchmarks included a then-seemingly astronomical market valuation of $650 billion – a value that was more than 10 times the company’s 2018 value of around $59 billion. Shareholders approved a total of 12 tranches that Musk must clear before acquiring the full amount.

In 2021, Tesla’s valuation briefly surpassed $1 trillion on news that rental car company Hertz had ordered 100,000 of its vehicles. (Hertz has since begun unloading its Teslas, citing high depreciation rates.) And in 2022, the company surpassed the benchmarks that triggered the vesting of the 12th tranche of options granted to Musk, allowing him to receive the pay package of 56 billion dollars.

Meanwhile, a shareholder lawsuit first filed in 2018 was working its way through the courts. The shareholder who filed the lawsuit, Richard Tornetta, alleged that the board did not have independence from Musk when approving the compensation plan. The board included Musk’s brother, Kimbal Musk, as well as friends Antonio Gracias and Steve Jurvetson. (Jurvetson and Gracias have since left Tesla’s board.) During the trial, Delaware Chancery Court Judge Kathaleen McCormick called this argument a “death shot.”

On January 30, McCormick voided Musk’s compensation, arguing that shareholders were not properly informed about the origins of the proposal. Tesla is now asking shareholders to ratify the same proposal again, while also approving the switch of the company’s state of incorporation from Delaware to Texas and the re-election of two board members, James Murdoch and Musk’s brother Kimbal .

It is unclear whether the cancellation of the previous proposal, nor the concerns raised by the proxy companies, will have any effect on how shareholders vote. Musk has enormous influence over retail investors in his company, and his acquisition of Twitter (which later became X) likely only increased his influence. About 44 percent of Tesla shares are held by retail investors, which is the highest percentage of the 10 largest companies in the S&P 500. Reuters it says.

The company is also publicly mobilizing support for the pay package through its website votetesla.com. “Over the past 6 years, you have seen the value of your investment in Tesla grow tremendously. The present and future value creation that we must offer to all of you is at risk”, writes the company. “We need your vote.”

But the decision may have already been made. A report from trading platform eToro last month showed that about 25% of Tesla shares have already voted, Reuters he said. Of these, more than 80% were in favor of Musk’s package.