ISS is recommending against Tesla CEO Elon Musk’s $1 tn compensation package. Glass Lewis too. CalPERS and NBIM, manager of the world’s most valuable sovereign wealth fund, have each come out publicly against.
But with the Tesla AGM happening today online and at Tesla’s Gigafactory Texas, one small, family-run proxy advisory firm – whose ESG-skeptic voting guidelines are offered by ISS, and which boasted the $57 bn Texas Permanent School Fund as the first state fund to sign up – is backing Musk’s compensation.
‘We’re strongly focused on the alignment of incentives,’ says Jerry Bowyer, CEO of Bowyer Research, who runs the firm with his wife Susan, COO of the company. ‘We like anything that puts the CEO or other executives as much in the same position financially as shareholders.
‘If CEOs got no cash at all, frankly that would be ideal,’ he continues. ‘We would like all stock compensation, because then the incentives are aligned the way we’d want them to be.’
Bowyer, speaking to IR Impact a day before the mammoth package goes to the ballot following a long, expensive and very public campaign to shore up support – admits that the $1 tn figure is ‘triggering’ for many. But with an avowedly shareholder-returns focused policy, he argues that it is still a plus for the end shareholder.
‘In an ESG world, there’s a focus on are executives being paid too much?’ he points out. But that isn’t the concern at Bowyer Research. ‘Our issue is, how is the payment being calculated? We don’t want any situation where the CEO can get rich and the shareholders don’t. When those things are aligned, we don’t see any reason for caps.’
It is the fact that Musk only gets the money if shareholders get an extra $7.5 trn – a delivery that would, in the carmaker’s words, ‘propel Tesla to become the most valuable company in history’, makes it a yes for Bowyer.
Corporate terrorists
So what are the concerns behind the multiple, public rejections of Musk’s compensation, which is essentially a revival of the 2018 deal that was ultimately struck down by a Delaware court? At ISS and Glass Lewis, where the firms are recommending against the second year in a row, concerns include the view that the plan ‘locks in extraordinarily high pay opportunities over the next 10 years’ while also ‘reduce[ing] the board’s ability to meaningfully adjust future pay levels.’ Musk responded by labeling proxy advisory firms ‘corporate terrorists’.
The influential NBIM – reportedly Tesla’s sixth-largest outside shareholder – is the only one of Tesla’s top 10 outside investors to disclose its voting intentions ahead of the vote, though analysts say this is still unlikely to sway the outcome. According to data from LSEG and published by Reuters, Musk himself is the largest external shareholder, with 15.3 percent of votable shares – which, unlike in 2018, he can exercise following Tesla’s reincorporation to Texas last year.
What do Bowyer Research clients think about a recommendation that goes against such a high-value grain?
‘Every client that’s asked me about this has been delighted by our answer,’ says Bowyer, ‘but then, none of our clients have invested for activist purposes.
‘All of our clients are invested for investment-return purposes – their investments have nothing to do with social impact, although, by being able to pay pension benefits so that someone who is retired – or their widow or widower – can have a decent living, is a social goal in its own right. That social goal is also their fiduciary obligation. So as Tesla owners, they would of course love to see Tesla go from a $1.5 trn company to a $7.5 trn company.’
Sustainable abundance
Bowyer points to a phrase in the Tesla ballot about ‘sustainable abundance’ – something that resonates with him. ‘That abundance mindset is not a mindset of envy. It is not about how rich the CEO is going to become, while ignoring the conditions under which the CEO becomes rich.’
Again, Bowyer stresses that he has no problem with how much someone is paid, as long as they’re growing the pie for everyone. ‘I know that people are triggered by the idea of $1 trn in compensation. I would get triggered by that, but frankly, I would get triggered by an unearned billion in compensation. I don’t want any CEO to get a million dollars that he or she hasn’t earned by creating value for shareholders.’