6 ms·

Tesla's biggest retail shareholder is voting against Elon Musk's $55B package

63 points by peutetre 3y ago

refurb 3y ago
I remember years ago when this pay package was first approved by the board. Elon negotiated an enormous package but only if he hit certain metrics. https://www.bloomberg.com/news/articles/2017-04-20/elon-musk-nears-1-4-billion-windfall-as-tesla-hits-milestones https://www.bloomberg.com/news/articles/2017-04-20/elon-musk... Musk, who was awarded 5.27 million stock options in 2012 tied to Tesla operational and market value targets, has achieved six of the 10 operational goals to date Hedge funds were shorting the hell out of the stock. Numerous articles that Tesla was going under, etc. He delivers on the ridiculous targets, takes home a massive windfall. Now investors want to reneg? They don’t think it’s fair? Seems a bit like they regret agreeing to the original deal.
- qarl 3y ago
  Well - it's not reneging. The court invalidated it.
- pclmulqdq 3y ago
  If you read Chancellor McCormick's ruling, the court found that most of those targets were not anywhere near "ridiculous," they were pretty much expected given the way Tesla was going. Tesla expected to hit most of them in 18 months or less. Also, the court invalidated the pay package, not the board or the investors.
  - deleted 3y ago
    [deleted]
  - refurb 3y ago
    Let's say you're a 10x programmer. You negotiate a sweet pay package that would make you tens of millions if the stock price hits targets. You negotiate, and are kind of surprised the company agrees to your stock price target, you thought they'd be higher. So if you employer later sues you and the judge agrees that the targets were too low, you'd be "ahh, no problem". Business is where you need to wear your big boy pants. If you agree to a bad deal, then you agree to a bad deal. You don't get to take it back.
    - kristianp 3y ago
      I don't get you. The employer would be happy if the targets were too low, because that means the share price is higher than they expected.
    - pclmulqdq 3y ago
      Now suppose that you are a huckster CEO. You founded your company and hired your board of directors, and most of them owe that sweet gig to you. You have them give you a sweetheart deal on your pay package - they owe you after all, and you're a good guy so you deserve it. You put it in terms of stock price numbers because you're pretty sure you're going to hit those, and it makes the pay package look sort of fair. They obviously don't push back on your requests. They are grateful to you for putting them on the board. Then they take that pay package to the shareholders and say "we fought him hard, but we have to give him a shit load of money to keep him." The shareholders think, "gee whiz the board is looking out for us and we love the CEO, which is why we own stock in this company. This must be a fair price because he's such a good guy." The shareholders think the deal is fair and they vote to approve it (rather than sending the board and CEO back to the negotiating table). That is closer to what actually happened here. There is a CEO who set his own pay package based on internal information that the board may well not have had, and there is a board of directors who pretended to have negotiated with him when they proposed the deal to the shareholders, when they really didn't do anything of the sort. This isn't "you agreed to a bad deal after a negotiation" - this is "you were tricked into signing the most ludicrous deal your counterparty could construct." The former is when you put on your big boy pants. The latter is when you sue the person who defrauded you (and you win).
      - refurb 3y ago
        > That is closer to what actually happened here. It's not actually how it works. Like at all. The board is not hired by the CEO. Shareholders elect board members, or for shareholders who are large enough, they appoint them. Sure, Elon can say "hey, I want this board member" and the shareholders can do with that as they will, they are under zero obligation to select them. Grateful he put them on his board? Did you see who these people are? Titans of industry many of them. Tesla was a tiny company everyone thought was going bankrupt at the time. Now you might say "Shareholders were hoodwinked". Tesla is dominated by a few large investors (Vanguard, T Rowe Price, etc). This is not a 60-year with a beer in his hand who bought a couple shares, these are large institutional investors with massive teams who do due diligence on their investments, one can't claim they were we "hoodwinked" or "misinformed". They had every opportunity to select board members who represented their interests. And not to mention - his pay package is public information. You yourself could go on sec.gov and look at it. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm https://www.sec.gov/Archives/edgar/data/1318605/000119312518... "Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests by the passage of time. Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of our stockholders do extraordinarily well. The award consists of stock options that vest only if Tesla achieves specific milestones, which if fully achieved would make Tesla one of the most valuable companies in the world with a market capitalization of at least $650 billion — more than 10x today’s value." The compensation agreement was back when the stock was $20/share. The stock price was 15-20 times larger at peak. He took at $65B company to $650B, creating $590B in wealth for shareholders. He got $50B. Funny how the only commentary when the pay package was agreed to was "If Elon hits these aggressive targets he'll be in for a big pay day, but too bad Tesla is running out of cash".
- TheLoafOfBread 3y ago
  Well it would have helped not to have board full of yes men and friends. That was the main gripe of Delaware judge.
- nytesky 3y ago
  A lot of the targets were stock price. The stock rose dramatically during pandemic because of retail investors and a cult of personality. The underlying business did not justify the price rise and the PE ratio exploded. With maturing electric market and profits, the PE ratio has come down but still reflects an enormous growth potential which seems unlikely for a manufacturing based company vs software. But you would argue the incentives were to increase the stock price, and all his tweets and stock manipulation shenanigans were aligned with how the board incentivized him, even if what they expected was him to improve the business and increase value vs “guerilla” marketing and cult-ivation of investors.
- nateglims 3y ago
  The board prepared the package and shareholders voted on it. Most of the targets were hit. Then an activist investor sued claiming that the board is beholden to musk and did not disclose that. The court agreed. Before a plan to vote on moving to Texas, the deal is now up for vote again with the court ruling attached.The stock price is also now below some of the targets previously achieved. If you are a shrewd investor, you have to balance the impact of the options on your assets vs the signal you send to not just musk but any future CEO. But realistically, shareholders probably don't believe news that Tesla is going under, know that he rarely hits his goals for getting to market, and probably liked musk's leadership when the stock price rose.
  - croes 3y ago
    Seems more like Musk prepared the package and exaggerated how ambitious the target are.
    - refurb 3y ago
      LOL, how do you "exaggerate" a 20x increase in share price? The creation of $500B in company value? "God dammit Elon, you never told us how easy it was to take a near-bankrupt company and turn it into a $650B enterprise!"
      - croes 3y ago
        Ask the judge, her verdict is >the Grant’s performance conditions were not, in fact, ambitious and difficult to achieve.
        refurb 3y ago
        It’s a weird read. On one hand the judge admits the company was teetering on insolvency, and one of the most shorted stocks, then turns around and says generating $600B in company value was “not ambitious or hard to achieve”. She also questions whether Elon was really necessary to the performance of the company.
- gamblor956 3y ago
  Some of those metrics were already well within normal forecasts, meaning that they would have been hit simply by overall economic growth not specific to Tesla. And Musk engaged in several acts of fraud to make sure the stock price-based metrics were hit. Or did you also forget "funding secured"? Or the numerous tweets that FSD "will be available this year"?
- ProjectArcturis 3y ago
  I for one am happy to see a billionaire get screwed by ordinary investors for once.
  - refurb 3y ago
    Generally the courts don't have separate rules for "billionaires" and "ordinary people". It would be interesting to see your response when a court makes the same decision for an employee pay package (which is what this was - Elon was an employee of Tesla).
- croes 3y ago
  >The Court found that the stockholder vote approving Musk’s Grant was not fully informed for two reasons: >the Proxy inaccurately described key directors as independent, when several of them had extensive personal and professional relationships of long duration with Musk, including owing much of their personal wealth to Musk; >the Proxy misleadingly omitted details about the process by which Musk’s Grant was approved, including material preliminary conversations between Musk and the Compensation Committee chairman, as well as Musk’s role in setting the terms of the Grant and the timing of the Committee’s work. >In addition to the process of approving the Grant, the Court considered its “price.” “The Board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” The Court concluded that it was not for three key reasons: >Musk already owned 21.9% of Tesla, which ownership stake gave him incentive to push Tesla to grow its market capitalization even without the additional compensation; >There was no risk that Musk would depart Tesla without receiving the Grant, nor did the Board condition the package on Musk devoting any set amount of time to Tesla; >the Grant’s performance conditions were not, in fact, ambitious and difficult to achieve.
- dragonwriter 3y ago
  > Elon negotiated an enormous package The deal was invalidated, in part, because the court found that the committee with whom it was “negotiated” were not, in fact, independent of Musk and that the shareholders were misled on this point. Which makes the description of the act as a “negotiation” somewhat misleading.
  - refurb 3y ago
    But it's odd, the end results of the "negotiation" are public. So regardless of how the negotiation (or not) happened, the end results (pay package) was in front of them in black and white to decide on. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm#toc524719_101 https://www.sec.gov/Archives/edgar/data/1318605/000119312518... It was pretty straightforward - if stock price hits X, Elon gets Y. It even says "Elon will own 12% of the company if all stock vests from hitting $650B in valuation". It even has a nice bar chart showing how much Elon would make if he hit the highest tier - CEO Value Realized ($B) - $55.8
    - dllthomas 3y ago
      You have a point, but on the other hand "this was negotiated by an independent party" is one part of what was in front of them, and may've influenced the decision.
ein0p 3y ago
I kinda wonder what will happen to TSLA if Musk were to just _walk away_. Which, to be clear, he can. And whether that'd be a net positive to "Tesla's largest retail shareholder".
- pstuart 3y ago
  I think they'd be better for it at this point. 1. Musk has destroyed the brand for many of their potential customers (who tend to be "liberal") 2. He no longer will force the company to pursue foolish distractions like the CyberTruck.
  - ein0p 3y ago
    [flagged]
    - CogitoCogito 3y ago
      Do you invest your life’s savings every time you believe a certain security will increase in value?
      - ein0p 3y ago
        No. I’m more aware of my own cognitive biases. “Smart people full of doubt” and all that.
        CogitoCogito 3y ago
        Are you implying that others commenting here are unaware of their cognitive biases? What leads you to believe that?
        ein0p 3y ago
        Their unwavering belief that Musk’s shitposting on Twitter will somehow affect anything IRL outside the increasingly insular US based neoliberal bubble.
stevespang 3y ago
[dead]
nkurz 3y ago
A slightly off topic and probably naive question: the article lists the top "institutional holders", starting with "Vanguard Group", "Blackrock Group", and "State Street Corporation". Are these institutions that are holding Tesla stock on behalf of mutual funds or ETF's that they then resell to the public? Or are these direct corporate investments? Or something else? More generally, who votes the shares that are held by these institutions? Does it differ depending on the purpose for which these shares are held? If it's held as part of a fund, do the owners of that fund get to decide, or does the management?
- zui 3y ago
  Depends, but for some fund, if you own the ETF, you can vote: https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/expanding-proxy-voting-choice.html https://corporate.vanguard.com/content/corporatesite/us/en/c...
- neuronexmachina 3y ago
  With Vanguard as an example, you can see their methods and past votes here: https://corporate.vanguard.com/content/corporatesite/us/en/corp/how-we-advocate/investment-stewardship/stewardship-in-action.html https://corporate.vanguard.com/content/corporatesite/us/en/c...
hnburnsy 3y ago
Based on the institutional chart, 27 million shares owned by this investor represent less than 1% of shares outstanding.
- CamelCaseName 3y ago
  And yet, worth $3.5B. Crazy.
FireBeyond 3y ago
It's funny how a couple of days, the Teslarati weren't worried about this, and assumed the largest shareholder blocks were planning to rubber stamp this, "and after that, it only needs 10% support". Not so much, now.

63 points by peutetre 3y ago

I remember years ago when this pay package was first approved by the board. Elon negotiated an enormous package but only if he hit certain metrics. https://www.bloomberg.com/news/articles/2017-04-20/elon-musk-nears-1-4-billion-windfall-as-tesla-hits-milestones https://www.bloomberg.com/news/articles/2017-04-20/elon-musk... Musk, who was awarded 5.27 million stock options in 2012 tied to Tesla operational and market value targets, has achieved six of the 10 operational goals to date Hedge funds were shorting the hell out of the stock. Numerous articles that Tesla was going under, etc. He delivers on the ridiculous targets, takes home a massive windfall. Now investors want to reneg? They don’t think it’s fair? Seems a bit like they regret agreeing to the original deal.

qarl 3y ago
Well - it's not reneging. The court invalidated it.
pclmulqdq 3y ago
If you read Chancellor McCormick's ruling, the court found that most of those targets were not anywhere near "ridiculous," they were pretty much expected given the way Tesla was going. Tesla expected to hit most of them in 18 months or less. Also, the court invalidated the pay package, not the board or the investors.
- deleted 3y ago
  [deleted]
- refurb 3y ago
  Let's say you're a 10x programmer. You negotiate a sweet pay package that would make you tens of millions if the stock price hits targets. You negotiate, and are kind of surprised the company agrees to your stock price target, you thought they'd be higher. So if you employer later sues you and the judge agrees that the targets were too low, you'd be "ahh, no problem". Business is where you need to wear your big boy pants. If you agree to a bad deal, then you agree to a bad deal. You don't get to take it back.
  - kristianp 3y ago
    I don't get you. The employer would be happy if the targets were too low, because that means the share price is higher than they expected.
  - pclmulqdq 3y ago
    Now suppose that you are a huckster CEO. You founded your company and hired your board of directors, and most of them owe that sweet gig to you. You have them give you a sweetheart deal on your pay package - they owe you after all, and you're a good guy so you deserve it. You put it in terms of stock price numbers because you're pretty sure you're going to hit those, and it makes the pay package look sort of fair. They obviously don't push back on your requests. They are grateful to you for putting them on the board. Then they take that pay package to the shareholders and say "we fought him hard, but we have to give him a shit load of money to keep him." The shareholders think, "gee whiz the board is looking out for us and we love the CEO, which is why we own stock in this company. This must be a fair price because he's such a good guy." The shareholders think the deal is fair and they vote to approve it (rather than sending the board and CEO back to the negotiating table). That is closer to what actually happened here. There is a CEO who set his own pay package based on internal information that the board may well not have had, and there is a board of directors who pretended to have negotiated with him when they proposed the deal to the shareholders, when they really didn't do anything of the sort. This isn't "you agreed to a bad deal after a negotiation" - this is "you were tricked into signing the most ludicrous deal your counterparty could construct." The former is when you put on your big boy pants. The latter is when you sue the person who defrauded you (and you win).
    - refurb 3y ago
      > That is closer to what actually happened here. It's not actually how it works. Like at all. The board is not hired by the CEO. Shareholders elect board members, or for shareholders who are large enough, they appoint them. Sure, Elon can say "hey, I want this board member" and the shareholders can do with that as they will, they are under zero obligation to select them. Grateful he put them on his board? Did you see who these people are? Titans of industry many of them. Tesla was a tiny company everyone thought was going bankrupt at the time. Now you might say "Shareholders were hoodwinked". Tesla is dominated by a few large investors (Vanguard, T Rowe Price, etc). This is not a 60-year with a beer in his hand who bought a couple shares, these are large institutional investors with massive teams who do due diligence on their investments, one can't claim they were we "hoodwinked" or "misinformed". They had every opportunity to select board members who represented their interests. And not to mention - his pay package is public information. You yourself could go on sec.gov and look at it. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm https://www.sec.gov/Archives/edgar/data/1318605/000119312518... "Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests by the passage of time. Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of our stockholders do extraordinarily well. The award consists of stock options that vest only if Tesla achieves specific milestones, which if fully achieved would make Tesla one of the most valuable companies in the world with a market capitalization of at least $650 billion — more than 10x today’s value." The compensation agreement was back when the stock was $20/share. The stock price was 15-20 times larger at peak. He took at $65B company to $650B, creating $590B in wealth for shareholders. He got $50B. Funny how the only commentary when the pay package was agreed to was "If Elon hits these aggressive targets he'll be in for a big pay day, but too bad Tesla is running out of cash".
TheLoafOfBread 3y ago
Well it would have helped not to have board full of yes men and friends. That was the main gripe of Delaware judge.
nytesky 3y ago
A lot of the targets were stock price. The stock rose dramatically during pandemic because of retail investors and a cult of personality. The underlying business did not justify the price rise and the PE ratio exploded. With maturing electric market and profits, the PE ratio has come down but still reflects an enormous growth potential which seems unlikely for a manufacturing based company vs software. But you would argue the incentives were to increase the stock price, and all his tweets and stock manipulation shenanigans were aligned with how the board incentivized him, even if what they expected was him to improve the business and increase value vs “guerilla” marketing and cult-ivation of investors.
nateglims 3y ago
The board prepared the package and shareholders voted on it. Most of the targets were hit. Then an activist investor sued claiming that the board is beholden to musk and did not disclose that. The court agreed. Before a plan to vote on moving to Texas, the deal is now up for vote again with the court ruling attached.The stock price is also now below some of the targets previously achieved. If you are a shrewd investor, you have to balance the impact of the options on your assets vs the signal you send to not just musk but any future CEO. But realistically, shareholders probably don't believe news that Tesla is going under, know that he rarely hits his goals for getting to market, and probably liked musk's leadership when the stock price rose.
- croes 3y ago
  Seems more like Musk prepared the package and exaggerated how ambitious the target are.
  - refurb 3y ago
    LOL, how do you "exaggerate" a 20x increase in share price? The creation of $500B in company value? "God dammit Elon, you never told us how easy it was to take a near-bankrupt company and turn it into a $650B enterprise!"
    - croes 3y ago
      Ask the judge, her verdict is >the Grant’s performance conditions were not, in fact, ambitious and difficult to achieve.
      - refurb 3y ago
        It’s a weird read. On one hand the judge admits the company was teetering on insolvency, and one of the most shorted stocks, then turns around and says generating $600B in company value was “not ambitious or hard to achieve”. She also questions whether Elon was really necessary to the performance of the company.
gamblor956 3y ago
Some of those metrics were already well within normal forecasts, meaning that they would have been hit simply by overall economic growth not specific to Tesla. And Musk engaged in several acts of fraud to make sure the stock price-based metrics were hit. Or did you also forget "funding secured"? Or the numerous tweets that FSD "will be available this year"?
ProjectArcturis 3y ago
I for one am happy to see a billionaire get screwed by ordinary investors for once.
- refurb 3y ago
  Generally the courts don't have separate rules for "billionaires" and "ordinary people". It would be interesting to see your response when a court makes the same decision for an employee pay package (which is what this was - Elon was an employee of Tesla).
croes 3y ago
>The Court found that the stockholder vote approving Musk’s Grant was not fully informed for two reasons: >the Proxy inaccurately described key directors as independent, when several of them had extensive personal and professional relationships of long duration with Musk, including owing much of their personal wealth to Musk; >the Proxy misleadingly omitted details about the process by which Musk’s Grant was approved, including material preliminary conversations between Musk and the Compensation Committee chairman, as well as Musk’s role in setting the terms of the Grant and the timing of the Committee’s work. >In addition to the process of approving the Grant, the Court considered its “price.” “The Board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” The Court concluded that it was not for three key reasons: >Musk already owned 21.9% of Tesla, which ownership stake gave him incentive to push Tesla to grow its market capitalization even without the additional compensation; >There was no risk that Musk would depart Tesla without receiving the Grant, nor did the Board condition the package on Musk devoting any set amount of time to Tesla; >the Grant’s performance conditions were not, in fact, ambitious and difficult to achieve.
dragonwriter 3y ago
> Elon negotiated an enormous package The deal was invalidated, in part, because the court found that the committee with whom it was “negotiated” were not, in fact, independent of Musk and that the shareholders were misled on this point. Which makes the description of the act as a “negotiation” somewhat misleading.
- refurb 3y ago
  But it's odd, the end results of the "negotiation" are public. So regardless of how the negotiation (or not) happened, the end results (pay package) was in front of them in black and white to decide on. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm#toc524719_101 https://www.sec.gov/Archives/edgar/data/1318605/000119312518... It was pretty straightforward - if stock price hits X, Elon gets Y. It even says "Elon will own 12% of the company if all stock vests from hitting $650B in valuation". It even has a nice bar chart showing how much Elon would make if he hit the highest tier - CEO Value Realized ($B) - $55.8
  - dllthomas 3y ago
    You have a point, but on the other hand "this was negotiated by an independent party" is one part of what was in front of them, and may've influenced the decision.

ein0p 3y ago

I kinda wonder what will happen to TSLA if Musk were to just _walk away_. Which, to be clear, he can. And whether that'd be a net positive to "Tesla's largest retail shareholder".

pstuart 3y ago
I think they'd be better for it at this point. 1. Musk has destroyed the brand for many of their potential customers (who tend to be "liberal") 2. He no longer will force the company to pursue foolish distractions like the CyberTruck.
- ein0p 3y ago
  [flagged]
  - CogitoCogito 3y ago
    Do you invest your life’s savings every time you believe a certain security will increase in value?
    - ein0p 3y ago
      No. I’m more aware of my own cognitive biases. “Smart people full of doubt” and all that.
      - CogitoCogito 3y ago
        Are you implying that others commenting here are unaware of their cognitive biases? What leads you to believe that?
        ein0p 3y ago
        Their unwavering belief that Musk’s shitposting on Twitter will somehow affect anything IRL outside the increasingly insular US based neoliberal bubble.

stevespang 3y ago

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nkurz 3y ago

A slightly off topic and probably naive question: the article lists the top "institutional holders", starting with "Vanguard Group", "Blackrock Group", and "State Street Corporation". Are these institutions that are holding Tesla stock on behalf of mutual funds or ETF's that they then resell to the public? Or are these direct corporate investments? Or something else? More generally, who votes the shares that are held by these institutions? Does it differ depending on the purpose for which these shares are held? If it's held as part of a fund, do the owners of that fund get to decide, or does the management?

zui 3y ago
Depends, but for some fund, if you own the ETF, you can vote: https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/expanding-proxy-voting-choice.html https://corporate.vanguard.com/content/corporatesite/us/en/c...
neuronexmachina 3y ago
With Vanguard as an example, you can see their methods and past votes here: https://corporate.vanguard.com/content/corporatesite/us/en/corp/how-we-advocate/investment-stewardship/stewardship-in-action.html https://corporate.vanguard.com/content/corporatesite/us/en/c...

hnburnsy 3y ago

Based on the institutional chart, 27 million shares owned by this investor represent less than 1% of shares outstanding.

CamelCaseName 3y ago
And yet, worth $3.5B. Crazy.

FireBeyond 3y ago

It's funny how a couple of days, the Teslarati weren't worried about this, and assumed the largest shareholder blocks were planning to rubber stamp this, "and after that, it only needs 10% support". Not so much, now.