Tesla's $2.6 Billion Musk Award Too Costly, Glass Lewis Says

(Bloomberg) -- Tesla Inc. shareholders should turn down a plan to grant Elon Musk a $2.6 billion award, the world’s second-biggest proxy adviser recommended, potentially sapping the company’s effort to assure investors that the co-founder isn’t leaving anytime soon.

The award, which could give Chief Executive Officer Musk an additional 12 percent of Tesla’s shares, is too costly and will dilute other investors, Glass Lewis & Co. said in a report to clients obtained Monday by Bloomberg. Tesla needs majority shareholder approval at a March 21 special meeting to make the grant.

“Any relative comparison of the grant’s size would be akin to stacking nickels against dollars,” Glass Lewis said in the Feb. 28 report, questioning why Musk would need one of the largest equity awards in history to keep him fully focused on the business.

Supporters have praised the compensation plan as a signal that Musk, 46, will remain at Tesla and that his other ambitions won’t take priority over stock returns. Others have raised questions as to whether the proposed 10-figure package’s purpose is to motivate Musk, who’s already a billionaire and holds a 20 percent stake, or a very expensive way of calming investors concerned that he’ll abandon the maker of electric cars for one of his other ventures.

A spokesman for Palo Alto, California-based Tesla declined to comment.

SolarCity Deal

Glass Lewis’s clients include more than 1,300 institutional investors worldwide, though they aren’t bound to heed its advice. In 2016, the advisory firm urged shareholders to reject Tesla’s proposed acquisition of SolarCity Corp., calling it a “thinly veiled bailout plan.” Investors ultimately approved the merger.

Tesla’s proposed award, first disclosed in January, would give Musk the option to buy as many as many as 20.3 million shares if the firm’s market value increased to $650 billion or more, and equally aggressive revenue and profit goals were met. Reaching those targets would make Tesla one of the world’s biggest companies and its CEO perhaps the richest person on the planet.

Musk was granted a similar but smaller award in 2012, linked to market value and development and production of electric cars. Most of those goals have been met and the firm’s share price has increased more than 10-fold. But the success has also underscored the company’s dependence on its CEO -- a risk factor that’s routinely spelled out in regulatory filings.

Part-Timer

“Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla,” the firm’s annual report said, noting that he’s also CEO of Space Exploration Technologies Corp. His other ventures, including start-up Neuralink Corp. and tunnel digger Boring Co., have fueled speculation that he may be looking to spend less time at Tesla -- a suggestion he’s repeatedly rejected.

“I expect to remain CEO for the foreseeable future,” Musk said on a February call with analysts. “There are no plans to make a change at this time.”

The award could affect what Tesla has to pay to hire a potential successor, Glass Lewis said, adding that Musk could receive a big windfall even if only a few of the tranches vested, while the requisite stock performance wouldn’t necessarily beat the broader market by a wide margin.

While it’s closely tied to performance, “the package loses sight of the question whether you truly need to put more equity at work for a CEO that already has considerable ownership” and outstanding equity grants, said Aalap Shah of compensation-consulting firm Pearl Meyer.

To contact the reporters on this story: Anders Melin in New York at amelin3@bloomberg.net, Dana Hull in San Francisco at dhull12@bloomberg.net.

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Steven Crabill, Anne Riley Moffat

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