Elon Musk’s increasingly mercurial behavior is having a substantial impact on the Texas-based EV maker. But it may also have a serious impact on the Tesla CEO himself as shareholder resistance grows to the $50 billion pay package the automaker wants to give Musk. A key investor, and former Musk “fanboy,” voting no.
Delaware Chancery Court Kathleen McCormick ruled Musk’s $56 Billion payout was “unfathomable.”
Tesla CEO Musk spent much of the last several years wearing the crown as the world’s wealthiest person, at his peak in 2022 worth an estimated $340 billion, according to the Bloomberg Billionaires Index. In recent months, however, he’s slid down the list a bit, the result of a January ruling by a Delaware judge who overturned a $56 billion pay package awarded the South African-born executive.
The Tesla board of directors has since proposed reinstating that package, asking shareholders to vote in favor. But, with Tesla facing increasing internal turmoil, much of it triggered by Musk’s ongoing job cuts program, the proposed pay deal is facing increasing resistance from key investors.
From fanboy to foe
The latest to weigh in is Leo Koguan, traditionally one of Musk’s biggest supporters and a major stockholder with 27.7 million shares of Tesla in his portfolio. The self-described “fanboy” and founder of IT firm SHI International told Forbes he has voted against the pay package. In fact, Koguan rejected a whole series of proposals put to a vote by the Tesla board. That includes new terms on the governing body for James Murdoch and for Kimbal Musk, the CEO’s brother.
At peak, Musk’s net worth was estimated to be $340 billion.
Significantly, Koguan also went thumbs-down on the company’s plan to transfer its legal base to Texas from Delaware. That transition would have moved Tesla to a state considered far less friendly to legal challenges than Delaware.
An e-mail sent by Koguan to the business magazine said the investor was “broken-hearted: by what has been happening with Musk, “the only person I really respect on Earth.: But the investor felt the CEO has “abandoned Tesla for his other companies,” which includes SpaceX and brain technology company NeuraLink.
An agent of chaos
Tesla has faced increasingly turmoil in recent months and it has come at a time when the company also faces increasing challenges at home and abroad. But much of the trouble has Musk at the center. The CEO has become increasingly controversial – and, to some, toxic – since his takeover of the former Twitter social media service where he has been posting increasingly extreme comments.
According to critics, he has taken anti-Semitic and pro-fascist positions on several occasions. That has not only driven advertisers away from what is now known as X, but also led to some potential Tesla buyers switching to other brands.
That contributed to Tesla’s unexpectedly weak first-quarter performance, according to numerous analysts, the automaker falling short of sales projections and suffering a 55% drop in year-over-year revenues.
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A mass exodus
Rebecca Tinucci, who oversaw Tesla’s Supercharger program was forced to resign earlier this month.
The chaos has accelerated in recent weeks, however. In April, Musk ordered a 10% reduction in the company’s workforce. The cuts were poorly handled, according to observers, many of those losing their jobs only finding out when they reported to work and discovered their digital passes didn’t work.
Even after the big reduction-in-force, however, Musk continued to trim staff – and some of the subsequent cuts had more to do with his autocratic manner than any well-considered plan. Autoblog this week quoted numerous Tesla sources who said the CEO fired the head of the well-respected Supercharger division solely because she resisted Musk’s demand for further job cuts. If anything. Rebecca Tinucci argued that Tesla needed to accelerate the roll-out of its public charging network. Making matters worse, Tinucci’s entire staff of around 500 employees was also dismissed.
Since then, Musk has forced out a number of other senior executives, even shutting down the product development team that has been racing to update and expand the company’s aging vehicle line-up.
A number of other senior executives have also handed in their resignations, including a top manager in the Tesla AI program and the head of human resources who decried the firing spree.
Driven to innovate
Tesla Chair Robyn Denholm is calling on shareholders to approve the pay package, insisting Musk will then be “driven to innovate.”
Musk’s original pay package was delivered in a series of tranches, each tied to specific performance metrics. Critics, however, asserted that the board already knew they’d be met, whether or not Musk was incentivized. The argument resonated with Delaware Chancery Court Judge Kathaleen McCormick who, in January, rejected the “unfathomable” payout, criticizing the board as “starry-eyed.”
“Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan,” McCormick wrote in her decision.
In attempting to reinstate the payout, Tesla Chair Robyn Denholm in a proxy statement underscored the argument that it “means he (Musk) will continue to be driven to innovate and drive growth at Tesla because the value of his shares will depend on it!”
Lost in the debate was Musk’s own demand that he also be granted a 20% voting stake in Tesla, roughly 50% beyond his actual holdings. That proposal appears to have been sidelined, if not abandoned, as the focus shifts to his massive pay bid.
Investors grow increasingly disheartened
For years, Musk appeared to have the overwhelming support of Tesla’s investors. That rock-solid backing has begun to fracture among investors bothe large and small.
The lawsuit targeting Musk’s pay package was initiated by small-time investor Solomon Chau who accused the company of tolerating a “toxic workplace culture grounded in racist and sexist abuse and discrimination against its own employees,” The lawsuit added that the “ environment has gestated internally for years, and only recently has the truth about Tesla’s culture emerged.”
Among Tesla’s biggest investors, Musk has been openly faulted for his handling of the X acquisition and subsequent posts, his long-running battles with the SEC and other controversies.
“Lately, I’ve discovered Tesla has one shareholder, a one-person (board of directors) and one tyrant CEO,” Koguan said in his e-mail to Forbes. “I tried to reach out, but he doesn’t listen to anyone. Only to his own loud voices in his head. The priority is he should work and do his job as CEO of Tesla. He already received 13% of Tesla. More than enough. He’s funded all his ventures from the Tesla ATM machine.”
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