A $2.6 billion stock option grant for Tesla Inc. CEO Elon Musk was supported by a majority of shareholders at a special shareholder meeting on Wednesday, despite objections from several large pension funds.
Mr. Musk does not receive compensation outside of the stock award, which required majority approval to pass. Under the new plan, Mr. Musk will earn one-12th of the options every time Tesla hits a pair of goals: one tied to its market value and the other linked to either revenue or earnings excluding certain charges. For Mr. Musk to get all the options, Tesla would have to become worth $650 billion — more than Facebook Inc. — and produce more revenue than Procter & Gamble Co.
The $355.4 billion California Public Employees' Retirement System, Sacramento; $224.4 billion California State Teachers' Retirement System, West Sacramento; and the C$337 billion ($257.2 billion) Canada Pension Plan Investment Board, Toronto, were among the shareholders that voted against the new compensation plan.
Anne Sheehan, director of corporate governance at CalSTRS, said in an emailed statement on the vote: "Given the size of the award, we believe the potential dilution to shareholders is just too great. In addition, we have concerns about the lack of focus on profitability for the company, and the one profitability metric that is used excludes the cost of stock-based compensation."
Proxy-voting advisory firm Institutional Shareholder Services recommended in a March 8 report that shareholders vote against the stock option grant, arguing that the value of the grant "is unprecedented and sets the new high-water mark for an individual executive equity award at a U.S. public company."
"While we recognize that Musk's leadership and his vision for Tesla in its mission to accelerate the world's transition to sustainable energy make him a unique CEO in many ways, the grant would provide pay opportunities over the next 10 years that dwarf those of top executives at the largest and most profitable public companies," ISS added. "Further, a substantial portion could be earned even if Tesla does not achieve sustained profitability."
Tesla has said in regulatory filings that Mr. Musk's award could yield him more than $50 billion if all goals are achieved.
A Tesla spokesman could not immediately be reached for additional information.
Bloomberg contributed to this story.