Tesla's Big Pay Dilemma: Why One Major Investor is Voting NO on Elon Musk's Mega Salary
In a surprising move, the California Public Employees’ Retirement System (CalPERS) has decided to vote against Elon Musk's controversial $56 billion pay package at Tesla's annual shareholders-no-elon-musk-pay-package">shareholder meeting. Despite seeing an 11-fold increase in its Tesla investment, CalPERS's decision is grounded in what it calls 'excessive' compensation that does not align with long-term profitability.
Why is CalPERS Opposed?
CalPERS, which owned nearly 9.2 million shares of Tesla stock as of June 7, cites several compelling reasons for its opposition to Musk's pay package:
- The whopping $56 billion package is not only unprecedented but also exceeds Tesla’s cumulative net income of $33.8 billion over the past four years, making it alarmingly disproportionate.
- The package would be dilutive, meaning it would reduce the ownership percentage of existing shareholders, giving more control to Musk.
- While the pay package has a five-year holding requirement, it is designed to benefit a single individual disproportionately.
- Compared to other high-performing companies, Tesla's pay package for Musk is nearly 140 times more than what other top-tier CEOs receive, clearly setting an exorbitant benchmark.
- The payout primarily rewards short-term market spikes rather than encouraging sustained, long-term profitability. It’s worth noting that Tesla's stock has fallen more than half from its 2021 peak.
Voices of Dissent
Drew Hambly, CalPERS's Global Equities Investment Director, weighed in on the matter, stating, “We do not think a payout based on short-term market exuberance is warranted without sustained performance.” He further argued that the deal concentrates too much power in Musk's hands and questioned the independence of Tesla's board members who negotiated the package. According to Hambly, these factors made it impossible for CalPERS to support the deal in 2018, and their stance remains unchanged today.
CalPERS’s CEO Marcie Frost echoed these sentiments. “This exorbitant compensation package is at odds with CalPERS’ longstanding views on executive pay,” she said. “While we agree that Mr. Musk is entitled to be well compensated for his work, we also believe that a pay package should be commensurate with a company’s performance with reasonable salary caps.”
Elon Musk’s Response
Elon Musk, never one to shy away from speaking his mind, expressed his disappointment in CalPERS's decision. “CalPERS broke the deal. Shame on them, they have no honor,” Musk remarked, standing firm in his belief that the pay package is justified.
Besides voting against Musk’s lucrative pay package, CalPERS is also targeting the lawyers who represented the shareholder challenging the pay package. The objection focuses on the lawyers' request for $5.6 billion in fees, which they aimed to receive in Tesla stock, arguing it is exorbitant and would further dilute shareholder interests.
Investor Sentiments and the Bigger Picture
This decision comes at a critical time for Tesla, which has experienced a chaotic stock fluctuation over the past couple of years. Moreover, this move by a major institutional investor like CalPERS could set a precedent for how other long-term investors view executive compensation packages, particularly those that are seen as excessive and short-term oriented.
CalPERS’s take is a call to action for all stakeholders to consider more sustainable and reasonable compensation structures, particularly in the high-stakes world of tech and automotive innovation. Whether this signals a broader industry shift remains to be seen, but one thing is clear: billion-dollar pay packages are coming under increased scrutiny.
Tesla’s annual shareholder meeting, set for tomorrow, will reveal if this heavyweight investor’s opposition will significantly influence the outcome or if Musk’s pay package will be ratified despite the objections. Either way, the discussion surrounding executive compensation has been irrevocably altered.