Exclusive-Vanguard vote switch helped pass Tesla CEO Elon Musk’s $56 billion pay package By Reuters

Written by Ross Kerber

(Reuters) – Vanguard, Tesla Inc. (NASDAQ:)'s largest outside investor, said it voted in favor of CEO Elon Musk's $56 billion pay package, citing the company's performance, which contributed to the record-breaking rankings being passed on Thursday.

In a memo seen by Reuters, Vanguard said it voted against Musk's compensation package when shareholders first approved it in 2018 because of its potential size, which may not have been justified by performance.

But “given the strong alignment between executive pay and shareholder returns since 2018 and the benefits emphasized by the Board regarding the CEO's incentive value in preserving the original deal,” Vanguard funds voted in favor of certification at Tesla's annual meeting, according to the memo.

On Friday, the memo will be made available on Vanguard's website to the fund manager's 50 million-plus investors.

Vanguard had 232 million shares of Tesla stock as of March 31, or about 7% of the company, second only to Musk's 13% stake. While some externally managed Vanguard funds vote separately, a Vanguard spokesman said the memo descriptions cover the majority of its funds.

Musk's pay was invalidated by a Delaware judge in January, leading to Thursday's vote. Top proxy advisors and many major investors lined up against the payout over concerns including that it was too much money.

Tesla had been looking to a large retail shareholder base to help approve Musk's pay and other terms including the re-election of two directors and moving the company's incorporation to Texas.

But Vanguard, which has about $9 trillion in total assets, and other large index fund managers were always likely to have a major role in the vote. Vanguard rivals BlackRock (NYSE:) and State Street (NYSE:) declined to comment on their votes Thursday.

On Thursday, Tesla did not reveal the exact number of votes, which are expected to be revealed in the coming days.

While Musk's pay was a “significant outlier” among CEOs, Tesla's shareholder return was in the 98th percentile of all Russell 3000 companies from 2018 through 2023, Vanguard said in its note. It achieved the same amount of absolute market value.” “Like a Tesla,” Vanguard said.

Tesla's performance has declined in recent periods, including a 26.5% stock price decline so far this year in the face of intense competition from other electric vehicle makers. The Vanguard memo did not address current performance. The stock closed up 2.9% on Thursday.

Vanguard also said its funds support the proposal to move Tesla's incorporation to Texas because “we did not observe material differences in shareholder equity between Delaware and Texas.”

Thursday's approval does not resolve litigation over Musk's pay package in a Delaware court, which some legal experts believe could drag on for months.