Investor's Corner

Tesla CEO Elon Musk gets investor support amid Glass Lewis rebuke

Tesla CEO Elon Musk’s 10-year Performance Award has attracted both support and criticism, with major investors Baillie Gifford & Co. and T. Rowe Price Group Inc. expressing their favor of the plan, and proxy service firm Glass Lewis asserting its opposition to the CEO’s potential total compensation.

Baillie Gifford & Co. and T. Rowe Price Group Inc. — firms which own a combined 14 percent worth of Tesla shares — have both announced their support for Musk’s proposed 10-year compensation plan. In a statement to Bloomberg, Baillie Gifford partner and fund manager Tom Slater stated that Tesla’s suggested performance award is satisfactory considering that the California-based firm has managed to grow and thrive due to Musk’s drive and vision.

“We think what Tesla has achieved so far is pretty remarkable, but there’s more they can do in not just automotive, but the energy markets. Elon Musk — his drive and his vision — has been a really important part of getting us to this point. Tesla still needs that drive and that vision to push the business,” Slater said.

Joel Grant, an automotive and industrial analyst at T. Rowe Price, further noted that the proposed performance award is a way to keep Elon Musk on the helm of Tesla.  According to Grant, T. Rowe Price would prefer it if Elon Musk can lead the electric car maker and energy firm for the foreseeable future. 

“The package was designed to retain him, and we are on board with the intention. We want to make sure that Elon stays and uses Tesla as a vehicle for a lot of growth,” the analyst said.

Proxy adviser Glass Lewis, however, begs to differ. In a statement to Market Watch, the shareholder advisor stated that the rewards waiting for Elon Musk if he manages to attain his goals over the next 10 years would be far too large. This compensation, according to Glass Lewis, has encouraged the proxy adviser to oppose the proposed performance award, according to a Market Watch report.

“Tesla’s proposal is peculiar in that it provides increasingly outsized compensation for levels of success ranging from noteworthy to unparalleled, while at the same time allowing Musk to keep his distance from the company.

“The potential up-front and future dilutive impacts to shareholders, along with the possibility of extraordinary pay levels even without commensurately exceptional performance, lead us to recommend that shareholders oppose this proposal.”

Modeled after his 2012 compensation plan, Musk’s new 10-year performance award is a high-risk, high-reward venture. As we noted in a previous report, Musk’s proposed award consists of a 10-year grant on stock options that vests in 12 tranches, with each of the tranches vesting only if the California-based firm can meet both the company’s target market cap and operational milestones. If successful, Elon Musk would raise Tesla’s market cap to $650 billion, and he would own roughly 28.3% of the company. If unsuccessful, however, Elon Musk will receive no pay at all.

Elon Musk’s proposed 10-year compensation plan is set to pass through a votation from the company’s shareholders on March 21, 2018, at 9:00 a.m. PST at the Tesla Training Center in Fremont, CA.

Tesla CEO Elon Musk gets investor support amid Glass Lewis rebuke
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