Published On: Sat, Mar 17th, 2018

Tesla Boss In Line For Mega-Pay Deal

Electric carmaker Tesla, facing pressure on a number of fronts, is asking shareholders for a show of support for chief executive Elon Musk.

Tesla Elon Musk

The firm has called a special meeting this month for investors to vote on a 10-year compensation plan for Mr Musk.

Under the plan, Mr Musk could receive stock awards worth an estimated $2.6bn – among the largest in US history.

The grants would only be distributed if the firm, which has made consistent losses, hits certain milestones.

Major holders of Tesla stock, including investment firms Baillie Gifford and T Rowe Price, have said they intend to support the pay plan, providing a vote of confidence.

‘Brand under fire’

Investors are impatient about delays in the production of Model 3 cars, a new model that is supposed to target a more mass-market clientele.

US regulators have raised questions about the firm’s financial disclosures, while some shareholders have complained about the board’s independence and its 2016 decision to buy SolarCity, a money-losing solar power company backed by Mr Musk and led by his cousin.

Outside the financial world, people have voiced concerns about the firm’s autopilot features and workers have spoken out about abrupt dismissals and a discriminatory work environment.

But financial analysts are sounding warnings that the firm is losing ground against competitors. Share prices have sunk since June, though they remain about 25% higher than a year ago.

Surveys suggest the public remains enthusiastic about Tesla, though the issues may be having an effect.

A Harris Poll ranked the company’s reputation third out of 100 American firms. But recent analysis by Netbase, which tracks social media posts, found Tesla compared poorly to other luxury brands.

Tesla pay plan

In an interview with Rolling Stone last year, Mr Musk described short-sellers as “jerks who want us to die”, blaming them for a campaign to amplify negative rumours.

Criticism of the pay proposal has focused primarily on its cost, not the firm’s performance.

John Roe, head of analytics for Institutional Shareholder Services, described the goals as “rigorous”.

“They’re trying to do the right thing with these new grants, or at least establish the right message that Musk is going to be aligned with shareholders,” he says.

But he also points out Mr Musk – whose net worth Forbes estimates at more than $20bn, much of it in Tesla stock – already has a lot riding on Tesla. He owns about 22% of the company, which could rise closer to 30% under the proposal.

Tesla has said the performance targets tie Mr Musk’s interests to shareholders, while offering an award “commensurate with the difficulty of achieving” the goals.

Victor Li, executive vice president for governance advisory at Kingsdale Advisors, says if the vote on pay goes Tesla’s way, that will strengthen Mr Musk’s mandate.