New York City's Comptroller and seven financial firms are recommending that Tesla shareholders give a thumbs-down to the electric car maker's ~$50 billion pay package for CEO Elon Musk.
The suggestion was part of a letter signed by NYC Comptroller Brad Lander and the aforementioned firms, submitted to the Securities and Exchange Commission (SEC). The letter is prefaced by saying it was filed on behalf of various pension and retirement funds for public employees such as teachers and police officers.
The signatories also include Amalgamated Bank, AkademikerPension, Nordea Asset Management, SHARE, SOC Investment Group, UNISON and United Church Funds.
The pay package, valued at roughly $50 billion in stock, was originally approved in 2018 contingent on Musk meeting various goals concerning the company's finances and stock price, which he did. However, a Delaware court ruled in February that the pay package was illegal owing to the Tesla board's deep ties with Musk, prompting the board to propose a fresh vote last month. The vote will be held on June 13.
While it might seem strange that the Big Apple's comptroller is getting involved, it's not Lander's first rodeo. In November, he publicly criticized Musk's alleged antisemitism, and said he was distracted by his other companies in April 2023, impairing his performance as Tesla's CEO. As for why Lander is into jumping into this latest issue, NYC's retirement funds include nearly one billion dollars in Tesla stock, and as comptroller he's the administrative head of the state's Retirement System.
Lander and co cited a litany of reasons as to why Musk shouldn't get the billions of dollars. One of their main criticisms is that the process for restarting the vote has been very questionable due to the Tesla board's Special Committee, which was established in February for the express purpose of reincorporating the electric car maker in Texas. This was a direct response to Delaware denying the pay package in the same month.
But as the letter notes, the Special Committee soon asked for extra powers to reapprove the original terms of the pay package. The board granted this request on March 5, which the shareholding bloc claims was a mistake.
"The Special Committee did not 'substantively re-evaluate the terms or amount of the 2018 award' nor did it engage compensation consultants," the letter reads.
The signatories also take issue with the fact that both original members of the Special Committee, who also sit on the board, hold deep ties with Musk. Joseph Gebbia admits to having a personal relationship with the tech tycoon, while Kathleen Wilson-Thompson has made $50 million from her Tesla stock and apparently stands to make around $200 million more thanks to yet unused stock options.
Then there's also the quirk of the Special Committee now being a one-person show, as Gebbia resigned from it almost immediately due to his friendship with Musk, leaving Wilson-Thompson on her own. According to the letter, even she thought this was a strange arrangement to have, and asked whether Gebbia would be replaced; it was decided that with the looming 2024 annual meeting, there just wasn't enough time.
"The Board's decision to utilize a Special Committee to ratify Musk's 2018 Pay Package is an attempt to undermine shareholders' best interest using unpredictable legal maneuvering," the shareholder letter claims. "By using the Special Committee process, Tesla is attempting to wipe the Board's slate clean by suggesting that the original 2018 Pay Package was reviewed by unbiased, uninfluenced, and independent directors, a major critique of the Tornetta [Delaware court case] decision. In our view, a committee of one is not truly a committee at all."
Vote out Kimbal Musk and James Murdoch too please
The letter actually spills even more ink on reforming the Tesla board, which it claims has been captured by the company's CEO and is now ineffective. Although sweeping changes aren't possible in the upcoming shareholder vote, it does recommend that shareholders deny the proposal to reelect Elon Musk's brother Kimbal Musk and James Murdoch, the son of media mogul Rupert Murdoch, to the board.
Being Elon Musk's brother, the shareholder bloc argues Kimbal Musk is too biased to be on the board. As for Murdoch, he apparently has been friends with the CEO for years, joining him on family vacations, and having attended Kimbal Musk's wedding.
The signatories of the letter also claim other board members have been allegedly compromised in one way or another. Three of them (including the Special Committee's Gebbia) are accused of being far too close to Musk within and outside of Tesla, and other board members have supposedly been influenced by financial gain from the car company's stock, specifically naming Wilson-Thompson and board chair Robyn Denholm.
"There is ample evidence that the Board is overly beholden to CEO Musk," the document alleges. "Indeed, Delaware Chancellor McCormick concluded that 'Musk operates as if free of Board oversight.' In fact, the Board has not stepped in when the CEO has made decisions that are personally beneficial but misaligned with the interests of Tesla shareholders."
The letter also goes into detail about their grievances with Musk himself, which were also likely a factor in the recommendation to vote against the pay package. The signatories charge the CEO with not spending enough time leading the company, which he can't do because he's also a CEO or leading figure in a handful of other firms, such as SpaceX, regular X, and Neuralink.
"The lack of Board oversight has effectively enabled Musk to use Tesla as a coffer for himself and his other business endeavors, even if these actions come at Tesla's expense," argues the stock-owning bloc. "In 2022, Musk admitted to using Tesla engineers to work on issues at Twitter (now known as X), and defended the decision by saying that no Tesla Board member had stopped him from using Tesla staff for his other businesses."
"More recently, Musk has begun poaching top engineers from Tesla's AI and autonomy team for his new company, xAI, including Ethan Knight, who was computer vision chief at Tesla," the letter continues to allege.
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The CEO's public statements made on X and elsewhere are also a sticking point, the letter states, and the signatories say Musk has caused damage to the car brand.
And of course, the recent performance of Tesla stock has also made the shareholding group very unhappy. To date, Tesla continues to be the worst stock in the S&P 500, down 28 percent as of the time of writing since the beginning of the year, even worse than Boeing, which is down 27 percent.
The gravity of the upcoming shareholder vote can be seen in Tesla's own SEC filings as of late, which almost exclusively document the efforts which the electric car firm and its CEO are taking to convince voters to approve the proposals. One such filing details a pro-Musk video and a spread of xeets Musk has made, rexeeted, or replied to. ®
