Tesla board went about Musk pay package wrong way: Investor

Tesla (TSLA) shareholders are now voting on whether to approve CEO Elon Musk’s pay package, now valued at $46 billion based on the company’s current stock price. The results will be revealed on Thursday, June 13 at Tesla’s annual shareholder meeting.

Gerber Kawasaki Wealth & Investment Management CEO Ross Gerber — a Tesla investor who owns about 300,000 shares — shares his reasons for voting against Musk’s compensation package. The California Public Employees’ Retirement System (CalPers), which holds 9.2 million Tesla shares, has also disclosed it will vote against the pay package.

A major incentive for passing the package through is that shareholders believe it will encourage Musk to stay on as CEO. Gerber states:

“I think he already has stepped back from the company and that’s been going on for two years now. And then he just eliminated every meaningful executive at Tesla over the last six months. So he put Tesla in a position where if we don’t vote for him and he, let’s say, threatens to leave the company and leaves the company, there’s actually nobody at Tesla to run it.”

Gerber’s biggest grievances are aimed at Tesla’s board of directors, finding them to be “negligent” for not negotiating the size of Musk’s pay package, which serves to detract from Tesla’s main objective: manufacturing and selling EVs.

Yahoo Finance shared a poll at the start of the trading week, asking whether Tesla shareholders should approve Musk’s pay package. Well over 400,000 respondents have participated in the poll, 96% of which voted “No.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Luke Carberry Mogan.

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Video Transcript

Our next guest says it is a nightmare, lose, lose situation for shareholders.

Joining us now, Ross Gerber, the CEO of Gerber Kawasaki Wealth and Investment Management.

It is good to see you, Ross.

You like the folks at Calpers, you plan to vote.

No or if you already vote, have you already cast your vote?

No, got you.

So, so lay out your case for why you’re not approving this pay package.

Story continues

I mean, it’s mostly have to do with the board of directors being so negligent and not only, you know, not, you know, doing the compensation committee and the proxy and the way that typically competition is done at every other public company other than Tesla is by independent committees of the board working with the CEO to come up with a comp package that is two sided.

This was not what happened Tesla.

It was just Elon presenting his comp package and them saying sure and you know, when it gets shot down by the core because of the lack of corporate governance, then the response is well, let us now explain how he came to this.

Let’s vote on this again.

Then we’re gonna go back and appeal and say, see the shareholders still want this and it doesn’t actually address the real issue, which is that still nobody negotiated with Elon on this pay package.

And it’s possible he would have agreed to maybe half the size of the baby package.

So let’s say 25 billion instead of 50 you know, that would have still been in a massively excessive amount of compensation.

So, so that’s why I’m voting against it because I just think this caused more problems than it solves.

And, and I think the board should craft a real compensation package for Elon with an independent board.

The way that it is required by law when you say a real compensation package ross any thoughts on what, what that would look like to you?

Well, you know, once again, I’m not against the basic structure of stock options and, and such and you know, I don’t think Elon needs much incentive in the sense of he owns, you know, 80 or $90 billion worth of Tesla stock at the time of the comp package, he owned $10 billion of Tesla stock.

So he’s made about, you know, 70 to 90 billion in gains irrelevant.

So, you know, we throw around these numbers, but in the real world, the average American makes 65 $1000 a year.

And so when you actually think about that, we’re talking about a compensation package for the wealthiest person that’s ever lived.

It’s the stupidest thing I’ve ever heard.

Like it’s literally so dumb that this is the focus of Tesla and not selling cars as we get to the end of a quarter where they’re gonna miss all their numbers, miss all the numbers here.

But, but they did make their numbers during the period in question that we’re talking about Ross.

I, I wanna talk about it went from zero.

I mean, you make numbers from zero.

Yes.

So I mean, this is a legitimate carmaker.

Now at a time when you know, you go back in time, there were a lot of people who thought that Tesla wasn’t gonna make it.

But let me leave that aside, but we’ve all been benefited from that, including Elon.

Let me leave that aside for a moment because I am curious what you think would happen if indeed the nose like you succeed here.

What then is the scenario?

Does, does Elon step back from the company?

For example, does he take his A I tech to, you know, somewhere to one of his other properties?

Well, there’s two sides to this one is I think he already has stepped back from the company and that’s been going on for two years now.

And then he just eliminated every meaningful executive at Tesla over the last six months.

So he put Tesla in a position where if we don’t fall for him and he, let’s say threatens to leave the company and leaves the company.

There’s actually nobody at Tesla to run it.

So he’s done this while the board is again closed their eyes and been fined as he’s just let go, a ton of, you know, really talented long term executives at Tesla for one reason or another.

So, you know, Tesla is in a really bad position, you know, because Elon put Tesla in that position to the benefit of Xa I and X and his other investments.

So right now he’s told us that he wants to build A I outside of Tesla, he’s moving chips from Tesla to Xai.

I it seems like what there’s a disconnect between what’s actually happening, which is an absent CEO who’s doing what’s best for A I for him to control it versus what’s best for Tesla and the board of directors isn’t willing to step in and say, hey, you know, this isn’t what, what’s best for Tesla.

So the issue to me is if the vote fails, how is he gonna retaliate against Tesla?

I mean, this is absurd for somebody who’s the majority owner of the company.

I mean, it’s absurd conversation.

He should be doing what’s best for Tesla no matter what.

And Ross besides, it doesn’t matter what the vote does.

He’s got 80 90 billion in the company.

Well, so what’s the, besides sort of further, you know, enabling the board in your view if he succeeds in this vote, what are the other downsides of him getting this vote to go his way.

Well, I kind of think the vote’s about 5050 right now.

Like I would flip a coin.

I don’t know what it’s gonna do.

Um, if it does pass, you know, the good news is we can just go back to litigating this comp package as it, it will be re litigated, I’m sure.

And the shareholders will be responsible for $25 billion of taxes on this that, you know, he’ll have to liquidate stock to pay and, and shareholders will bear that cost.

So as long as shareholders are fine with, you know, I when that happens, it will be a detriment to the, the value of the company.

So that’s, it’s really expensive to pay somebody $50 billion.

So, you know, that’s the shareholders paying them.

So, you know, does he deserve it or not deserve it?

You know, we could debate this till we’re blue in the face.

I don’t think anybody deserves $50 billion for running a company for five years, but that’s just me, Ross.

When did you first get into Tesla?

I got into it in 20 it was 2014 when it was a $2.

That’s a nice, that’s a nice return under Mr Musk.

That’s right.

It’s a wonderful return and, and let’s not forget if it weren’t for the US government loaning Tesla money and if it weren’t for investors like me and other institutional investors that stood by Elon through this period of time, Tesla would have gone bankrupt like five times.

And, and in 2018, in particular, I supported Elon at the most crucial time in Tesla history.

It was literally all these people, people on Twitter who think they are such big fans weren’t nowhere to be found in 2018 except for Ross Gerber.

And so, you know, I’m out there helping Elon and helping Tesla succeed.

Now, it’s a small part of the overall story for sure.

And Elon built a wonderful company, but as I said, he benefited the most of anybody from Tesla’s success and all of us, the rest of his shareholders rightfully benefit along with him.

And that’s how companies work.

But that said, um I, I think Elon deserves compensation.

I’m not saying he doesn’t deserve to be compensated.

What I’m saying is they need to go out doing these things the right way and the right way is by having a negotiation, that’s fair.

The typical CEO makes $20 million a year, but he’s not the typical CEO.

So let’s look at a guy like Steve Jobs.

When he came back to Apple, he got 7.5 million share option.

It was, the value was substantially less than anything Elon’s even looked at and, you know, actually Steve Jobs, he didn’t have any stake really in Apple when he came back.

So it was like they had to give him incentive.

So, you know, there’s precedent for founder CEO S that are incredible innovators with option packages as well.

And, and I think the board should work hard to come up with something fair that will compensate Elon for the past and the future and be defendable in a court of law.

Well, we’ll see if that happens.

Ross.

Thanks a lot for joining us.

Great to catch up with you as always.

Thanks for having me.