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Top Tesla investor advised to reject Musk’s $56bn pay deal

The advice service says the pay package has so far failed to sharpen Mr Musk's focus on Tesla
The advice service says the pay package has so far failed to sharpen Mr Musk's focus on Tesla - David Swanson/REUTERS

One of the world’s biggest investors has been advised to vote against a historic $56bn (£44bn) bonus for Elon Musk amid a looming battle at Tesla.

Vanguard, the second largest shareholder in Tesla after Musk himself, is among clients of the advice service Glass Lewis to be sent a report encouraging it to block the pay deal.

Glass Lewis described the payment as “excessive”, warning it would dilute the stakes of existing investors and concentrate power with Mr Musk.

It comes ahead of a vote by Tesla shareholders on June 13, that risks throwing the future of the company into question.

Investors signed off on the $56bn payment in 2018, provided Mr Musk hit certain targets.

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However, the agreement was voided in January this year by a Delaware judge who warned that Tesla directors negotiating the package had failed to fully inform shareholders.

She also said the deal was “unfathomable” and suggested the board had been blinded by Mr Musk’s “superstar appeal”.

On Saturday, Glass Lewis said that the pay package had so far failed to sharpen Mr Musk’s focus on Tesla as he pursued side projects including his Space X rocket venture and the takeover of Twitter, now rebranded as X.

It said: “Mr Musk’s slate of extraordinarily time-consuming projects unrelated to the company was well-documented before the 2018 grant, and only expanded with his high-profile purchase of the company now known as X.”

The report noted that while it was unreasonable to expect unwavering focus at all times, Tesla had become “reliant on the presence of one individual for its success”, and the lucrative pay deal appeared ineffective in keeping Mr Musk focused.

Projects outside of Tesla had been attracting criticism and raised concerns over the risk to shareholder value, it added.

The world’s largest maker of electric vehicles could choose to ignore the outcome of next month’s pay vote, as it is advisory.

However if the carmaker’s board can illustrate the deal still has widespread backing, it may help launch an effective legal appeal against the Delaware judgement. Mr Musk vowed to move the electric vehicle giant’s legal incorporation to Texas after the ruling.

Shareholders will also vote on this at the annual meeting in two weeks, but Glass Lewis warned it brought uncertain benefits and risk for investors.

Mr Musk has threatened to develop artificial intelligence products elsewhere without greater control of Tesla, which is seeking to become an AI and robotics firm as well as a carmaker.

If Mr Musk receives the pay package, his stake in the company will rise from 13pc to 20pc.

Tesla’s board, which has repeatedly been accused of being too close to the eccentric billionaire, had suggested the record-breaking payout.

The deal would set rewards based on Tesla’s market value rising to as much as $650bn (£513bn) over 10 years from 2018.

At the time when it was agreed such targets appeared outlandish.. However, Tesla’s valuation went on to peak at more than $1.2 trillion during the 2021 Covid trading boom and it is currently valued at $571.6bn.

Robyn Denholm, the chairman of Tesla’s board, earlier this month insisted that Musk deserved the package after hitting ambitious targets for revenue and stock price.

Mr Musk became Tesla’s largest shareholder in 2004, the year after it was founded, and was named chief executive in 2008.

Glass Lewis also urged shareholders to block the reelection of Mr Musk’s brother Kimbal to the board over independence concerns.

It recommended re-electing Rupert Murdoch’s son James, the former chief executive of 21st Century Fox.

Glass Lewis said that it raised several concerns over the pay deal in 2018 and while many had been addressed, most were still causing concern.

The report said: “The excessive size of the award, both on a pure dollar basis and in terms of the dilutive effect upon exercise, remains very much top of mind.

“The company’s provided rationale does little to combat these concerns given their proportionate magnitude.”