Before the Move: Tesla in focus ahead of shareholder vote on compensation

Shares of Tesla (TSLA) are in focus amid the upcoming shareholder vote on a proposed $2.6B compensation package for chief executive officer Elon Musk. SHAREHOLDER VOTE: Tesla shareholders will vote on the package for Musk at a special shareholder meeting on Wednesday, Bloomberg reported. The package, which would give Musk an unprecedented ten-figure award of stock options, is linked to Tesla meeting a number of goals and needs support from investors holding a majority of the share. Shareholders Baillie Gifford & Co. and T. Rowe Price (TROW) have signaled they're likely to support the plan. PAY PLAN DETAILS: On January 23, Tesla announced a new ten-year performance award for Musk with vesting entirely contingent on achieving market cap and operational milestones. In order to fully vest, Tesla's market cap would have to grow to $650B, an increase of almost $600B, and important revenue and profitability goals would also have to be achieved. Musk will receive no guaranteed compensation of any kind -- no salary, no cash bonuses and no equity that vests simply by the passage of time. Instead, his only compensation will be a 100% at-risk performance award. The performance award consists of a ten-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vest only if a pair of milestones is met. To meet the first market cap milestone, Tesla's current market cap must increase to $100B. For each of the remaining 11 milestones, Tesla's market cap must continue to increase in additional $50B increments. For Musk to fully vest in the award, Tesla's market cap must increase to $650B. To meet the operational milestones, Tesla must meet a set of escalating revenue and adjusted EBITDA targets designed to ensure that as Tesla's market cap grows, the company is also executing well on both a top-line and bottom-line basis. For each of the 12 tranches that is achieved, Musk will vest in stock options that correspond to 1% of Tesla's current total outstanding shares. If none of the 12 tranches is achieved, Musk will not receive compensation. For vesting to occur when the milestones are met, Musk must remain as Tesla's CEO or serve as both executive chairman and chief product officer with all leadership reporting to him. PROXY FIRM RECOMMENDATIONS: Proxy advisory firm Glass Lewis has recommended Tesla stakeholders vote against the proposal, saying if Musk were to receive the full grant, he would own 28.3% of the car maker, Reuters reported in March. "The cost of the grant is staggering relative to executive compensation levels among public companies worldwide," Glass Lewis said. In addition, proxy firm ISS recommended shareholders reject the pay package, saying the "unprecedented" stock award is too rich, Reuters reported. The award "locks in unprecedented high pay opportunities for the next decade, and seemingly limits the board's ability to meaningfully adjust future pay levels in the event of unforeseen events or changes in either performance or strategic focus," ISS said. TESLA UNDER PRESSURE: Tesla has also seen executives depart the company in the last month with Susan Repo, corporate treasurer and VP of finance, leaving to take on a chief financial officer position at another firm and chief accounting officer Eric Branderiz departing for "personal reasons". Additionally, the company lost Jon McNeill, president of global sales and service, in February and former CFO Jason Wheeler in 2017. Tesla is also expected to report production and deliveries results for its Model 3 Sedan, which has faced challenges including quality issues and a production halt. Musk has delayed manufacturing goals several times for Model 3. PRICE ACTION: Tesla rose 2.6% to $318.54 in morning trading. "Before the Move" is The Fly's recurring series of exclusive stories that identify potentially market moving events, along with analyst predictions, ahead of the news.

Sign Up

Get the InvestingChannel
Free e-Letter Today

Learn More

Independent market opinion, analysis and ideas - delivered every business day

Premium market opinions, analysis, and ideas - delivered every business day

Editor's Picks