June 13th is judgment day for Elon Musk’s large $56 billion (€51.7 billion) pay deal, rejected by a Delaware judge in January but now facing a new shareholder vote at Tesla’s annual meeting.
Almost three-quarters of shareholders approved Musk’s pay package in 2018 but that didn’t sway Judge Kathaleen McCormick, who condemned the Tesla board’s lack of independence, acidly characterising them as “supine servants of an overweening master”.
One must also wonder if shareholders voted for something they believed would never actually happen. Did anyone really think Tesla, worth $50 billion in March 2018, would exceed the $650 billion market capitalisation required for Musk to bank his full bonus?
Musk has his backers, including Baillie Gifford’s flagship Scottish Mortgage Investment Trust, one of Tesla’s most high-profile shareholders. Shareholders in the trust, which has lost a quarter of its value over the last three years, may not agree. Proxy advisory firm Glass Lewis estimates Musk’s pay deal would require Tesla to create 304 million new shares, representing a 9 per cent dilution for current shareholders.
Shareholders approving Musk’s pay deal, then, seems like turkeys voting for Christmas.
One counterargument is that a rejection may weaken Musk’s ties to to Tesla, given he has already threatened to develop AI products outside the company if it does not increase his shareholding. However, Musk’s xAI has just raised $6 billion to take on OpenAI. Paying Musk $56 billion doesn’t mean he won’t spend his time on his own AI ventures.
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