Elon Musk's $56B Tesla pay package in the balance as shareholders hold meeting

Tesla shareholders are set to decide whether to reinstate CEO Elon Musk's $56 billion pay package at the electric vehiclemaker's annual shareholder meeting on Thursday.

Musk's compensation package, which is believed to be the largest of any CEO of a publicly traded company in the U.S., was voided by a Delaware judge after finding that Tesla's board didn't adequately disclose its members' relationships to Musk and that the company was on pace to achieve most of the performance-based package's benchmarks.

In the wake of the ruling, Tesla put the potential reinstatement of Musk's pay package to the company's shareholders to approve or reject in advance of Thursday's meeting. Shareholders will also consider changing Tesla's state of incorporation from Delaware to Texas, a move Musk championed in the wake of the state court's ruling.

Musk and Tesla have encouraged shareholders to vote on the measures before them by offering them a chance to win a personal tour guided by Musk of Tesla's Gigafactory in Austin, Texas, though the company isn't requiring entrants to vote for or against any specific matter before shareholders in order to be eligible.

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Tesla has touted Musk's accomplishments for the EV giant since his pay package was initially approved by shareholders in 2018, writing on its website that Musk has delivered a total shareholder return of nearly 1,100% since then and adding that if he had "failed to achieve unprecedented growth targets for Tesla, he would receive ZERO compensation. He did not fail."

Musk's pay package has no salary or cash bonus and offers rewards in the form of stock options that are awarded based on Tesla's market value rising to as much as $650 billion over the 10 years following 2018. The company's market capitalization is around $555 billion as of Wednesday's market close.

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The vote on Musk's package has drawn support and opposition from a variety of stakeholders and proxy advisory firms in the buildup to Thursday's vote.

Tesla board chair Robyn Denholm wrote in a letter to investors that "If Tesla is to retain Elon's attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal."

"Motivating someone like Elon requires something different," she added. "This is one of the key reasons the award also requires Elon to hold any shares he receives upon exercise of stock options for five years after he exercises the options — which can only serve to incentivize him to continue delivering value to Tesla and our stockholders."

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Florida's pension board announced that it voted in favor of reinstating Musk's pay package and said the plan "exhibits very high levels of pay-for-performance." The pension fund holds 2.89 million shares and is Tesla's 80th largest investor.

Prominent investor Ron Baron, founder of Baron Capital, released an open letter last week saying he backs the compensation plan. He wrote that "Elon is the ultimate 'key man' of key man risk," adding, "Without his relentless drive and uncompromising standards, there would be no Tesla."

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Proxy advisory firm Glass Lewis wrote in late May that it opposed Musk's compensation package because of its "excessive size" as well as the impact of Musk exercising his stock options and the concentration of the company's ownership.

Glass Lewis also cited Musk's "slate of extraordinarily time-consuming projects" that have increased after the acquisition of Twitter, now known as X, as well as the billionaire's other ventures. Another proxy advisory firm, Institutional Shareholder Services, also signaled its opposition to the pay plan.

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California Public Employees' Retirement System (CalPERS) CEO Marcie Frost said the pension would oppose Musk's pay package and wrote that the "exorbitant compensation is at odds with CalPERS' longstanding views on executive pay" and that it's "excessive when compared to executives at peer companies, highly dilutive to shareholders, and isn't tied to the long-term profitability of Tesla."

"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 to a company's performance with reasonable salary caps. Those features are absent in the deal as structured," Frost added.

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New York City Comptroller Brad Lander, who oversees the city government's public pension funds, said he opposes the compensation package in a post on X. He wrote that "Elon Musks's (sic) are threatening to pull the company in bad directions."

Norway's $1.7 trillion sovereign wealth fund — the largest in the world — holds a 0.98% stake in Tesla and announced last week that it would vote against reinstating the pay package.

Reuters contributed to this report.