Tesla's shareholder meeting has even higher stakes this year. Here's why.

By Claudia Assis

Elon Musk's $56 billion package, reincorporation, board nominations up for votes at annual meeting

Shareholder meetings are often staid, surprise-free events. Tesla Inc.'s meetings historically have been anything but, and this year's promises to be even more of a news event.

Tesla (TSLA) shareholders are being asked to vote on Chief Executive Elon Musk's $56 billion pay package, and also decide whether the company, headquartered in Texas, should move its state of incorporation there, from Delaware. Other ballot proposals include re-electing two board members.

The EV maker also has taken the somewhat unusual step of creating a website to drum up support for its proposals, hoping its large base of retail investors, often passionate fans, will heed its calls. The meeting is scheduled for June 13, and voting is underway.

Tesla has the 13th-lowest percentage of institutional investors for companies in the S&P 500 index SPX, according to FactSet.

Danilo Kawasaki, co-founder and chief operating officer of Gerber Kawasaki Wealth and Investment Management in California, has made his decision.

"I personally voted for Elon's comp package as it was already approved and reversing it now would not be fair," he said. "Elon delivered amazing results in the last 10 years despite the last 12, 18 months being way below our expectations."

A Delaware judge in January voided Musk's compensation package in a far-reaching decision that quoted Mary Shelley, Shakespeare and "Star Trek," and called the process of arriving at the $56 billion sum "deeply flawed."

Gerber Kawasaki pared down its Tesla holdings to about $52 million and has about $2.8 billion in assets under management. Gerber Kawasaki does not vote client proxies. The firm's other co-founder, Ross Gerber, ended a run for a seat on Tesla's board last year.

Proxy adviser Glass Lewis recently came out against the CEO pay package and against the re-election of Kimbal Musk, Elon Musk's brother, to the board as well as a reincorporation in Texas from Delaware.

Glass Lewis and Institutional Shareholder Services Inc., which has not yet made public its recommendations, are the two largest independent services meant to advise investors on crucial shareholder votes.

Don't miss: Can Elon Musk do 'whatever he wants'? Why moving Tesla out of Delaware may spook investors.

"There's always a lot of focus surrounding Tesla's annual meeting, but the stakes are much higher this year with Musk's pay package and moving the company's state of incorporation from Delaware to Texas on the ballot," CFRA analyst Garrett Nelson said.

Tesla's board is concerned about the vote, and it's hard to predict which ones will be greenlighted or blocked, Nelson said.

"We're reluctant to make a prediction ... except to say the implications of the proxy votes are significant and we think the vote regarding Musk's pay package will be lower than the 73% approval it received in 2018," the analyst said.

One of the main reasons Tesla shares trade at a "massive" premium is Musk's leadership and innovation, Nelson said. "If the pay package were to be voted down, it could increase uncertainty regarding the future direction and leadership of the company."

At last year's meeting, Musk confirmed the sales date for the Cybertruck and former longtime lieutenant J.B. Straubel was elected to the board. Musk also dispelled rumors he would step down as Tesla's top executive.

Tesla shares have had a rocky year so far, down nearly 30% and underperforming the S&P 500 SPX, which has gained about 11% in the same timespan.

-Claudia Assis

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05-28-24 1613ET

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