Tesla 2025 Shareholder Vote on Elon Musk’s $55.8 Billion Compensation Plan: What Investors Should Know

UPDATE—June 12, 2024: This article has been revised with the latest share prices and updated insights.

Essential Highlights

• Tesla's 2024 annual shareholder meeting includes a critical vote on CEO Elon Musk's $55.8 billion compensation package.
• The original pay plan, approved in 2018, was invalidated earlier this year by a court siding with an investor lawsuit citing excessive compensation.
• Analysts warn that rejection of the package may negatively affect Tesla's stock price and Musk’s billionaire status.

Tesla Inc. (TSLA) is gearing up for a pivotal shareholder vote on Thursday to determine whether Elon Musk’s $55.8 billion pay package will be reapproved. This compensation plan was first sanctioned in 2018 but faced legal challenges that led to its annulment earlier this year.

The outcome of this vote is significant, as it could influence Musk’s ranking among the world’s wealthiest individuals and impact Tesla’s stock performance. Experts from Jefferies and Piper Sandler caution that a rejection could drive Tesla shares downward.

Supporters Assert Musk’s Pay Reflects Performance

The 2018 compensation plan tied Musk’s pay to ambitious market capitalization and financial milestones, including Tesla reaching a $650 billion market cap and meeting set revenue and profit targets. Tesla asserts that this plan motivated Musk to achieve exceptional growth.

“In less than six years, Elon Musk delivered a staggering 1,100% shareholder return,” Tesla emphasized in a recent shareholder letter, referencing data from March 21, 2018, through the end of 2023. “Had Musk not met these extraordinary targets, he would have earned no compensation. He succeeded.”

Ron Baron, founder and CEO of Baron Capital, penned an open letter endorsing Musk’s compensation, stating that shareholders should consider whether Tesla is better off with or without Musk. Baron concluded emphatically that Tesla’s success is closely tied to Musk's leadership.

The company also highlighted backing from major institutional investors including T. Rowe Price, Baird, and Egan-Jones, and influential figures such as Warren Buffett and Jim Cramer.

Proxy Advisors and Some Major Funds Oppose the Pay Plan

Opposition to Musk’s pay package comes from prominent entities like Norway’s sovereign wealth fund—the world’s largest—and CalSTRS, the second-largest U.S. pension fund. Proxy advisory firms, influential in guiding passive investor votes, have recommended against approving the compensation plan.

Glass Lewis stated that they oppose transactions offering minimal financial benefit while potentially weakening shareholder rights. They caution that the proposed changes could invite litigation over diminished shareholder protections, especially given Musk’s dominant ownership position.

Institutional Shareholder Services (ISS) similarly recommended a “no” vote. Bernstein analysts, who rate Tesla stock as “underperform,” anticipate the pay package is unlikely to pass due to this lack of proxy advisor support.

Bernstein also noted that approximately 25% of eligible voting shares are held by passive investors or institutions publicly opposing the pay plan.

Potential Impact on Tesla Stock Price

Jefferies analysts warn that rejecting the compensation proposal would be detrimental to Tesla’s stock, interpreting it as misplaced regret over Musk’s prior earnings despite the plan’s flaws.

Piper Sandler analysts echoed concerns, predicting a possible decline in Tesla shares if the pay package is rejected.

Bernstein forecasts a drop exceeding 5% in the stock price amid concerns Musk might exit Tesla if the package fails, while a successful vote would likely yield a more modest positive reaction.

Tesla shares climbed nearly 4% to close at $177.29 on Wednesday, ahead of the shareholder vote. However, the stock has declined over 28% since the start of 2024 amid investor worries regarding company growth.

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