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Tesla's Largest Outside Investor Vanguard's Vote Switch Helped Pass Elon Musk's $56B Pay Package

Author: Shivani Kumaresan | June 14, 2024 10:50am

At Tesla Inc.'s (NASDAQ:TSLA) recent shareholder meeting, the influential investment firm Vanguard was pivotal in approving CEO Elon Musk's notable $56 billion compensation package, affirming their support based on Tesla's exceptional performance and shareholder value creation.

Vanguard's endorsement of Tesla comes after initially opposing Musk's remuneration plan in 2018 due to concerns over its size relative to company performance.

However, the alignment of Musk's compensation with Tesla's substantial shareholder returns since then led to a change in their stance, according to a report from Reuters.

The remuneration package, which a Delaware judge had previously invalidated in January, necessitated a re-vote.

Despite some resistance from top proxy advisers and significant investors worried about the package's scale, Vanguard's support was crucial in its passage.

Tesla pulled out all the stops to convince its growing base of retail investors to reapprove Musk's pay package, with its board Chair Robyn Denholm, defending it as an incentive for Musk to reach ambitious financial and operational targets.

Elon Musk himself appealed to the shareholders to cast their votes on their shares by offering them an opportunity to win a personal tour of the company's Texas facility.

Also Read: Elon Musk Teases Three New Vehicles At Tesla's Annual Shareholder Meeting; More Affordable Model Incoming?

As Tesla's largest external shareholder, holding approximately 7% of its stock, Vanguard's decision reflects its influence over corporate governance.

With around $9 trillion in assets, the firm often plays a decisive role in such corporate votes, Reuters said.

Despite a challenging year for Tesla, which saw a 26.5% drop in share price amid increasing competition, the company's long-term performance has been good.

From 2018 to 2023, Tesla's shareholder return ranked in the 98th percentile among Russell 3000 companies, justifying Musk's high compensation as a reflection of the significant market value Tesla has created, in Vanguard's view, Reuters writes.

The approval at the shareholder meeting does not conclude the ongoing legal challenges regarding Musk's compensation in Delaware court.

Legal experts anticipate that these proceedings could extend over several months, potentially impacting future governance and compensation discussions at Tesla.

Additionally, Vanguard supported Tesla's proposal to relocate its incorporation from Delaware to Texas, citing no significant differences in shareholder rights between the two states, which may further influence Tesla's strategic corporate decisions.

Tesla stock has lost more than 23% in the last 12 months. Investors can gain exposure to the stock via ETFs, including Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) and Fidelity MSCI Consumer Discretionary Index ETF (NYSE:FDIS).

Price Action: At the last check on Friday, TSLA shares were trading lower by 1.90% at $179.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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