Tesla shareholders approved a compensation package potentially worth as much as $2.6 billion for chief executive and co-founder Elon Musk, despite objections from proxy advisory firms and the California State Teachers’ Retirement System.
The $231.6 billion pension fund had voiced concerns about the size of the pay package ahead of the electric vehicle maker’s annual meeting this week, joining Institutional Shareholder Services and Glass Lewis in opposing the compensation plan.
“While we appreciate that the board of Tesla is trying to incentivize and further align Mr. Musk with that of shareholders, we cannot support the 2018 performance award,” Anne Sheehan, CalSTRS’ director of corporate governance, said via email. “Given the size of the award, we believe the potential dilution to shareholders is just too great.”
Despite these concerns, shareholders voted in favor of the package, a Tesla spokesperson confirmed Wednesday.
The package is made up of stock options that will be vested as Tesla’s market value increases, according to an SEC filing by the company. The vesting will occur over a period of ten years.
ISS valued Musk’s total potential compensation from the pay plan over that ten-year period at $2.6 billion. Similarly, Glass Lewis estimated Musk’s potential annual pay to be worth $261.5 million, well above the average for CEOs at companies of Tesla’s size and importance, according to the proxy advisory firm.
Based on these numbers, both ISS and Glass Lewis had recommended that shareholders vote against the compensation package.
“Even in consideration of the significant and perhaps historic achievements that would be required for Musk to ultimately realize the full award value, we consider that the design and terms carry a number of risks that, when coupled with the unparalleled magnitude, overshadow the underlying rationale for the grant,” ISS stated.
Sheehan said that CalSTRS was also concerned about the “lack of focus on profitability for the company,” noting that the one profitability metric used to determine Musk’s pay excludes the cost of stock-based compensation.
CalSTRS holds 258,084 shares of Tesla Inc. valued at $80,147,986, according to a spokesperson.
Tesla’s shares were up 4 percent following the annual meeting, hovering around $322 per share at midday.