Source: Wall Street View, Author: Zhao Ying
If the salary negotiations are unsuccessful, Musk may resign. If the compensation plan is approved, it will be bullish for the stock price by eliminating uncertainty, but it also means that the risk of Musk's continued investment in other fields such as AI remains.
Tesla shareholders' meeting has never lacked 'highlights'. This time, Musk will once again stage a 'wage claim'.
On Thursday next week (June 14th, 4:30 am Beijing time), Tesla will hold its 2024 shareholders meeting, which will vote on CEO Musk's $56 billion compensation plan that has attracted a lot of attention.
As the world's largest electric car manufacturer CEO, Musk does not receive traditional fixed salaries, and all of his compensation is tied to the company's market cap and performance.
In 2018, the Tesla board awarded Musk $56 billion in incentive stock options for years to come, but the premise was that Musk had to achieve a series of growth and profit targets.
However, earlier this year in 2024, a judge in Delaware ruled that the previous vote was invalid because of insufficient information disclosure to investors, so the vote needs to be taken again.
Six years later, Tesla's market value has expanded nearly nine times, and other companies founded by Musk, such as the AI company xAI and the social platform X, are gradually growing, causing increasing concerns about his divided attention to other businesses. At the same time, fierce competition in the electric car market has led to sliding growth and profit margins for Tesla.
Will Musk's sky-high pay plan go through smoothly?
Will Tesla shareholders approve Musk's pay plan?
There are still differences among Tesla shareholders over the plan, with Tesla investors, California Geba Kawasaki CEO, voting for Musk's compensation plan and third-party shareholder advisory firm Glass Lewis publicly opposing it.
This week, the Norwegian sovereign wealth fund stated that it will vote against the pay plan. According to LSEG data, the fund is the 8th largest shareholder in Tesla, holding 0.98% of the shares, with a size of about $7.7 billion.
The fund stated that although they appreciate the value created by Tesla under Musk's leadership, they have concerns about the total size of the compensation plan, the performance trigger structure, share dilution and risk mitigation measures for key personnel. The fund also voted against this compensation plan in 2018.
It is worth noting that Musk's compensation is the highest among US CEO's, and the fund voted against the compensation plans of more than half of the US CEO's with salaries exceeding $20 million last year, warning that these plans are inconsistent with creating long-term value for shareholders.
Although differences exist, most analysts expect that the compensation plan will be approved.
Early voting appears to indicate that the plan is highly likely to pass. A report from eToro last month showed that about 25% of shareholders have already voted, and more than 80% of them support the plan.
Morgan Stanley analyst Adam Jones said that according to his customer survey, more than half of the respondents expect to vote 'for'. Although the results may have been reflected to some extent in the current stock price, it is expected that there will be more downward space than upward space in Tesla's stock price after the vote result is announced.
If the plan is approved, it will be bullish for the stock price by eliminating uncertainty, but it also means that the risk of Musk's continuing investment in other areas such as AI remains. Analysis shows that Tesla needs Musk's driving force, but the question of how Musk will balance his investment in Tesla and other businesses in the long run is still a matter of continuous attention.
If he fails to claim his wages, will Musk resign?
This week, Tesla Chairman Robyn Denholm urged shareholders to approve Musk's pay plan and warned that if Musk's compensation plan is not approved, he may leave Tesla.
She said:
This is clearly not a question of money, it's all about keeping Elon's attention and motivating him to focus on achieving amazing growth for our company. Elon has delivered on his promises and created huge value for our shareholders. We should also show that we support his vision for Tesla and recognize his extraordinary achievements, which will inspire him to continue creating value for shareholders.
In the letter to shareholders submitted to the SEC, Denholm wrote:
Elon is not a typical executive, and Tesla is not a typical company. Therefore, the typical way of providing compensation to key executives cannot bring performance to Tesla, and motivating people like Elon requires something different.
Denholm emphasized that Musk needs "incentives", which means that he can stay in Tesla only if he gets the largest CEO compensation plan in history. Musk may escape to "other places" without motivation. He has no lack of ideas and can make amazing changes in other parts of the world.
Although Tesla is Musk's primary source of wealth and fame, he now leads many companies, such as SpaceX, The Boring Company, Neuralink, X and xAI, responsible for many different projects, which may divert his attention from Tesla.
It is worth mentioning that Musk is still seeking more control over Tesla, that is, 25% of the shares. Currently, he holds about 13% of the shares. In January of this year, Musk publicly expressed dissatisfaction with the current holdings. He said that without about 25% of the voting control, he would feel uneasy and would rather develop products outside of Tesla.
Editor/Lambor