Tesla is in a tough spot. With less than a week away until its shareholder meeting, people inside the company are questioning the qualifications of the board and the value of their CEO. The situation is causing a civil war between supporters and detractors.
The origin of the controversy is the $55 billion bonus that Tesla committed to paying Elon Musk, the company's chief executive, in 2018 if he achieved a series of goals. Musk did his part, but shareholders saw the figure as disproportionate and appealed it in courts. The court ruling annulled the bonus payout, which Musk hasn’t stopped fighting for.
From the board’s warnings... Tesla board chairwoman Robyn Denholm addressed the company’s shareholders in an open letter sent to the Securities and Exchange Commission (SEC).
In the letter, the chairwoman reaffirmed her commitment to paying the Tesla CEO the huge bonus by claiming that “Elon is not a typical executive, and Tesla is not a typical company. So, the typical way in which companies compensate key executives is not going to drive results for Tesla. Motivating someone like Elon requires something different.”
… to veiled threats. The tone of the letter rises slightly when Denholm issues a veiled threat about a hypothetical Musk departure, suggesting that the billionaire could go “elsewhere” without the right motivation.
“Elon most certainly [does not have] unlimited time. Nor does he face any shortage of ideas and other places he can make an incredible difference in the world. We want those ideas, that energy and that time to be at Tesla, for the benefit of you, our owners. But that requires reciprocal respect,” the chairwoman stated in the letter.
For Musk, it’s not about money. It’s about power. Despite the issue at hand, Denholm stated in her letter that this isn’t about money: “This is obviously not about the money. We all know Elon is one of the wealthiest people on the planet, and he would remain so even if Tesla were to renege on the commitment we made in 2018.”
The underlying issue is the one that the Tesla CEO put on the table a few weeks ago: Getting more power over Tesla to take it in whatever direction he sees fit without being subject to shareholder oversight. That power would mean doubling his stake from the 12% he currently holds to at least 25%.
Tesla’s financial health is in question. Beyond the astronomical bonus, which would make Musk the highest-paid CEO in modern history, shareholders are questioning the wisdom of paying him such a large sum given the company’s current situation.
“Elon has done an extraordinary job; he built one of the most transformative companies in the age, but for the $55 billion pay increase, precisely at the time when you’ve missed quarterly numbers, growth is slowing down, and you’ve laid off the 15% of the workforce, I would say, arrogance, to say the least,” Tesla’s former audit committee chairman Steve Westly said in an interview with CNBC.
Surveys show that Musk is the winner. Although big funds and corporate shareholders are against the Tesla CEO’s bonus payment, Reuters reports that a poll conducted by eToro says that Musk is winning the shareholder vote.
According to the outlet, the small shareholders holding 25% of the company's shares have already cast their early vote for the June 13 shareholders meeting. About 80% of these votes purportedly favor paying out Musk's bonus and moving Tesla’s incorporation from Delaware to Texas.
Musk’s mutant bonus. As this case evolved, Tesla CEO’s bonus amount changed from $55.8 billion to $46 billion. However, the bonus hasn’t changed at all. What's changed is Tesla’s financial situation.
The bonus consists of granting Musk up to 12 bundles of stock options, with each bundle representing 1% of total outstanding shares. Taking this as a reference, if the value of the shares were at an all-time high, as they were before the court ruling, the valuation of the package would be $55.8 billion.
But Tesla’s shares aren’t performing at their best, so their price has dropped considerably. As, the billionaire would be awarded shares worth approximately $46 billion.
Image | Flickr (Ministerio de Comunicações) | Unsplash (Priscilla Du Preez)
View 0 comments