Tesla shareholder group opposes Musk’s $46B pay, slams board “dysfunction”

A Tesla shareholder group yesterday urged other shareholders to vote against Elon Musk’s $46 billion pay package, saying the Tesla board is dysfunctional and “overly beholden to CEO Musk.” The group’s letter also urged shareholders to vote against the reelection of board members Kimbal Musk and James Murdoch.

“Tesla is suffering from a material governance failure which requires our urgent attention and action,” and its board “is stacked with directors that have close personal ties to CEO Elon Musk,” the letter said. “There are multiple indications that these ties, coupled with excessive director compensation, prevent the level of critical and independent thinking required for effective governance.”

Tesla shareholders approved Elon Musk’s pay package in 2018, but it was nullified by a court ruling in January 2024. After a lawsuit filed by a shareholder, Delaware Court of Chancery Judge Kathaleen McCormick ruled that the pay plan was unfair to Tesla shareholders and must be rescinded.

McCormick wrote that most of Tesla’s board members were beholden to Musk or had compromising conflicts and that Tesla’s board provided false and misleading information to shareholders before the 2018 vote. Musk and the rest of the Tesla board subsequently asked shareholders to approve a transfer of Tesla’s state of incorporation from Delaware to Texas and to reinstate Musk’s pay package. Votes can be submitted before Tesla’s annual meeting on June 13.

The pay package was previously estimated to be worth $56 billion, but the stock options in the plan were more recently valued at $46 billion.

“Tesla has clearly lagged”

From March 2020 to November 2021, Tesla’s share price rose from $28.51 to $409.71. But it “has since fallen to $172.63, a decline of $237.08 or 62 percent from its peak,” the letter opposing the pay package said.

“Over the past three years, and especially over the past year, Tesla has clearly lagged behind its competitors and the broader market. We believe that the distractions caused by Musk’s many projects, particularly his decision to buy Twitter, have played a material role in Tesla’s underperformance,” the letter said.

Tesla’s reputation has been harmed by Musk’s “public fights with regulators, acquisition of Twitter, controversial statements on X, and his legal and personal troubles,” the letter said. The letter was sent by New York City Comptroller Brad Lander and investors including Amalgamated Bank, AkademikerPension, Nordea Asset Management, SOC Investment Group, and United Church Funds.

Musk has taken advantage of lax oversight in order “to use Tesla as a coffer for himself and his other business endeavors,” the letter said. It continued:

In 2022, Musk admitted to using Tesla engineers to work on issues at Twitter (now known as X), and defended the decision by saying that no Tesla Board member had stopped him from using Tesla staff for his other businesses. More recently, Musk has begun poaching top engineers from Tesla’s AI and autonomy team for his new company, xAI, including Ethan Knight, who was computer vision chief at Tesla.

This is on the heels of Musk’s post on X that he is “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control,” a move widely seen as a threat to push Tesla’s Board to grant him another mega pay package.

The Tesla board “continues to allow Musk to be overcommitted” as he devotes “significant amounts of time to his roles at X, SpaceX, Neuralink, the Boring Company and other companies,” the letter said.