Written by Ross Kerber
(Reuters) – Top proxy advisory firm ISS recommended that Tesla (NASDAQ:) shareholders vote against ratifying CEO Elon Musk's $56 billion pay package, calling the compensation excessive and rejecting the plan drawn up by the electric car maker's board.
In a report sent by a representative late Thursday, Institutional Shareholder Services also recommended a vote against Tesla CEO James Murdoch, but supported a vote for director Kimbal Musk, Elon Musk's brother, and for the company's proposed move to change its state of incorporation to Texas. From Delaware.
The move follows a similar recommendation to vote against Musk's pay package by agency consulting firm Glass Lewis last week.
The vote is seen as a referendum on Musk's leadership, with investors concerned that the billionaire businessman is distracted by his other projects and that his often controversial comments affect Tesla's reputation and sales.
Tesla did not respond to a request for comment.
The massive compensation arrangement, the largest for a corporate CEO in America, bases bonuses on Tesla's market value and operational milestones. But in January, a Delaware judge struck down the plan, and Tesla subsequently sought to move its state of incorporation to Texas.
Unusually, Tesla has put its 2018 pay plan up for a re-approval vote at its next annual meeting on June 13.
Influence by proxy
While recommendations from major proxy consulting firms play a role in focusing attention on particular issues at corporate annual meetings, their precise impact on votes is up for debate and criticism.
A recent study by the University of Utah found that their recommendations can have a significant impact on votes, but it also found that companies themselves may only be steering the opinions of investors and their customers.
Tesla responded to Glass Lewis' recommendations in a securities filing earlier this week, saying Musk creates wealth for Tesla stockholders and has “skin in the game.”
In recommending a vote against Musk's pay, ISS wrote that “although the award's performance hurdle structure contributed to, and reflected, the company's significant financial growth during the performance period, the total award value remains excessive, even in light of the company's success.” “.
Additionally, the grant failed, in many ways, to achieve the Board's other original goals of focusing CEO Musk on the interests of Tesla shareholders, rather than other business endeavors, and aligning his financial interests more closely with those of Tesla shareholders. “The International Space Station report said.
Other concerns include a “lack of clarity on the board’s plan” for Musk’s future pay, ISS wrote.
ISS recommended a vote against director and audit committee member Murdoch “given concerns about the risk oversight function of the board”.
ISS wrote that while it had concerns about the process Tesla's board used to decide to move to Texas, it was “not readily apparent that shareholders' rights would be materially harmed as a result of the proposed reincorporation.”
Tesla is making a public effort to garner support for the pay package, and the company's board has justified the compensation by saying it's necessary to ensure Musk prioritizes Tesla over his other commitments.
Tesla shares fell slightly in premarket trading on Friday, and are down about 28% so far this year.
“It's a very interesting case for Tesla, given that it's the most popular stock globally by retail investors who frankly don't care what ISS is asking them to do,” said Ben Laidler, global markets strategist at trading platform eToro.
About 44% of Tesla's common stock is owned by non-professional shareholders including individual investors, the highest percentage among the world's 10 largest companies, according to S&P Global Market Intelligence.
A report from eToro earlier this month showed that votes had been exercised on about a quarter of all Tesla shares held by users of the trading platform, with more than 80% voting in favor of Musk's pay package.
“If anyone is going to buck the trend that the proxy advisors are saying, it will be Tesla,” Laidler said. “The vote is a real test of the strength of individual investors.”