Tesla CFO Vaibhav Taneja on Wednesday urged company shareholders to vote yes in an upcoming “say on pay” vote regarding a pay package, valued at $1 trillion, sought by CEO Elon Musk, noting the special committee which approved the compensation proposal “did an amazing job in constructing this plan for the benefit of the shareholders.” Though not binding, say on pay votes can provide a strong signal to leadership and boards regarding shareholders’ feelings on executive compensation.
Shareholders for the Austin, Texas-based electric vehicle maker are expected to vote on the proposal during Tesla’s annual shareholder meeting, scheduled for Nov. 6. The meeting will “shape the future of Tesla, and we are asking you as our shareholders to support Elon's leadership through the two compensation proposals” and the reelection of three board members, Ira Ehrenpreis, Joe Gebbia and Kathleen Wilson-Thompson, Taneja said Wednesday in closing remarks during Tesla’s third quarter earnings call.
“There is nothing which gets passed on [until] the time shareholders make substantial returns,” Taneja said of both proposals, according to a transcript, urging shareholders to back the board’s recommendation.
It’s unusual for a finance chief to comment on a CEO’s pay during an earnings call, as that’s “out of his bailiwick,” Charles Elson, founding Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said. A CEO’s pay is out of the domain of the finance chief, so it “just doesn’t come up,” Elson told CFO Dive in an interview.
“I’m not an expert, but I do not recall any CFO being a cheerleader for the CEO’s pay plan,” Nell Minow, shareholder activist and Chair at ValueEdge Advisors LLC, which advises institutional investors on corporate governance said in an emailed response to questions. “The board should answer questions about CEO compensation, not an underling. This pay plan is an outrage and an affront to the shareholders and to the fiduciary duty owed to them by the obviously captive board.”
Although the circumstances are unusual, Taneja’s job is “dependent on the largesse of Mr. Musk, so I'm not surprised by his comments,” Elson said. Shareholders should take that source into account: “Okay, you've got an employee of Mr. Musk…Mr. Musk has demanded this package, and the company, the management, is supporting this, and they can take it for what it's worth,” he said.
Additionally, “you also have to figure if they're going to give Mr. Musk that kind of amount, the CFO can't be that far behind. Maybe he’s hoping to get something similar,” Elson said.
Assuming Tesla’s CFO chair in 2023, Taneja was one of the highest-paid executive officers for the company’s fiscal 2024: for the year, he received total compensation of $139 million, largely comprised of an equity award, CFO Dive previously reported. He has since sold millions in company stock over the course of the past year, offloading $918,311 in his latest sale in September.
Taneja’s Wednesday comments mark the latest move in a years-long chess match between Musk and some Tesla shareholders regarding the CEO’s compensation — which has drawn increased scrutiny amid plunging profits and other headaches for the EV maker as it faces the impacts of tariffs and rising competition in electric vehicle manufacturing.
The looming Nov. 6 shareholder vote comes as Musk remains embroiled in a legal battle with the state of Delaware relating to a $56 billion pay package Tesla approved in 2018, when the company was incorporated in the state before its 2021 relocation to Austin, Texas.
Following a shareholder lawsuit which accused the EV maker’s board of failing in its fiduciary duty, as well as charging that Musk had too much influence over the board, a Delaware Chancery Court rejected the package as excessive and directed the business to come up with a new compensation arrangement. The same pay package was put up for a vote in 2024, before that vote was rejected the judge, with Musk and the Tesla’s board appealing the decision to Delaware’s Supreme Court this March, NPR reported.
The newest $1 trillion pay proposal, the full award of which will vest over 10 years, brings up many of the same questions and concerns which surrounded the 2018 and 2024 proposal, including Musk’s level of influence in the EV maker. Among other incentives, the pay package would also bump up Musk’s ownership in Tesla to 25%, according to the preliminary proxy statement filed with the Securities and Exchange Commission by the company on Sept. 5.
The proxy also notes that Musk “raised the possibility that he might pursue other interests” during negotiations. “Ultimately, the Special Committee believed it to be critical to Tesla to secure Mr. Musk’s commitment and focus to lead Tesla,” the proxy states.
The newest proposal also raises questions on how to approach Musk’s compensation in the face of an ongoing slump in profits and net income for the automaker.
For Tesla’s third quarter, total revenue increased 12% year-over-year to reach approximately $28 billion, with automotive revenues hitting $21 billion, according to Tesla’s earnings presentation released Wednesday. However, Tesla’s operating income plummeted by 40% to $1.6 billion, driven by factors including increased operating expenses and a higher average cost per vehicle due to “lower fixed cost absorption for certain models, and increase in tariffs, and sales mix,” the presentation said.
Net income attributable to common shareholders under generally accepted accounting principles fell by 37% to $1.3 billion, compared to $2.1 billion for the prior year period. To receive the full performance award valued at $1 trillion, Musk is required to create about $7.5 trillion in shareholder value, according to the proxy.
