Tesla shareholder that has made 11x on its investment votes against Musk pay package

It’s official: The California Public Employees’ Retirement System will vote against Tesla CEO’s $56 billion pay package on Thursday at the company’s annual shareholder meeting, despite making 11x on its investment.

CalPERS says it owned nearly 9.2 million shares of Tesla stock as of June 7, and will not support Musk’s pay package ratification for several reasons:

• The value is approximately $46 billion, accounting for the cost to exercise the options, which is larger than the last four years of Tesla’s aggregate net income of $33.8 billion (2020-2023).
• The award would be highly dilutive to existing shareowners and reduce their ownership proportion.
• While the award does have a five-year holding period, it is concentrated in a single individual.
• Compared with other high-performing companies over the same period, the Tesla option award is nearly 140 times the annual pay opportunity for other high-performing CEOs.
• The payout rewards short-term growth and not sustained profitability. Tesla’s value has fallen by more than half from its peak in 2021.

Its Global Equities Investment Director, Drew Hambly, also said:

“We do not think a payout based on short-term market exuberance is warranted without sustained performance. Additionally, this deal concentrates power in a single shareholder and was negotiated by board members whose independence from Tesla’s CEO is questionable. For these reasons, CalPERS could not support the deal in 2018 and remains opposed today.”

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CalPERS has seen an 11x growth on its investment since 2018, but believes Musk’s pay package would be “excessive compared to executives at peer companies” and would impact shareholders. It also said the pay package isn’t tied to Tesla’s long-term profitability, as it has already been earned and does not incentivize Musk to perform better in the future.

Marcie Frost, CEO of CalPERS, also said:

“This exorbitant compensation package is at odds with CalPERS’ longstanding views on executive pay. The compensation is excessive when compared to executives at peer companies, highly dilutive to shareholders, and isn’t tied to the long-term profitability of Tesla…While we agree that Mr. Musk is entitled to be well compensated for his work, we also believe that a pay package should be commensurate to a company’s performance with reasonable salary caps. These features are absent in the deal as structured.”

Musk said recently that he was disappointed in CalPERS decision to vote against ratifying his pay package.

“CalPERS broke the deal. Shame on them, they have no honor.”

CalPERS is also doing something else, which is related to the decision in the pay package case. It said it filed an objection against the lawyers who represented the shareholder that first challenged Musk’s pay package, as their requested $5.6 billion in fees taken in the form of Tesla stock is “exorbitant and would dilute shareholders’ interest in Tesla.”

The Shareholder Meeting is scheduled for tomorrow.

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