What's Next After Tesla CEO Elon Musk's Pay Package Vote?
Tesla shareholders voted to reinstate CEO Elon Musk's massive pay package. Here's what you need to know.
Tesla (TSLA) stock popped this week as investors awaited then digested the results of a shareholder vote that ultimately reinstated CEO Elon Musk's estimated $56 billion pay package. The vote also gave shareholder approval to the electric vehicle maker moving its state of incorporation to Texas from Delaware.
Musk's compensation package was approved in 2018 and was tied to specific performance milestones, including a significant increase in Tesla's market cap.
"In order to receive any compensation whatsoever for his work as CEO, Elon needed to meet ultra-ambitious financial and operational targets over a 10-year period," Tesla said. "Elon met these targets, which created tremendous value for stockholders."
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However, the compensation package was challenged in Delaware's Court of Chancery because some shareholders believed the package was excessive and that Tesla's board of directors were too close to Elon Musk to protect shareholders' interests, according to CNN.
To reinstate the pay package, Tesla held another shareholder vote, with investors also asked to weigh in on the company moving its state of incorporation to Texas from Delaware.
"We believe in stockholder rights," Tesla said. "In Delaware, your vote was not respected."
However, the results of the vote will not immediately reinstate the pay package. According to Reuters, a 'yes' vote will be used as support in Tesla's case to reverse the Delaware judge's ruling against the package.
Additionally, another shareholder filed a suit last week that challenges Thursday's proxy vote.
And even though shareholders approved the measure to move the state of incorporation to Texas from Delaware, Tesla has said it will not use that move to ignore the judge's ruling, Reuters said.
Is Tesla stock a buy, sell or hold?
Most analysts are on the sidelines when it comes to the Magnificent 7 stock. According to S&P Global Market Intelligence, the consensus analyst target price for Tesla stock is $182.88, a discount to current levels. Meanwhile, the consensus recommendation is a Hold.
However, CFRA Research analyst Garrett Nelson is bullish on TSLA stock with a Buy rating and $210 price target.
The result of the vote is good news for Tesla shareholders and was likely passed due to the "overwhelming support of TSLA's large retail investor base, who collectively own roughly 40% of the shares," Nelson says. The approval lifts "a major near-term overhang on the stock, as investors send a strong message of 'staying the course.'"
Nelson adds that Elon Musk "has delivered for shareholders over the past five to six years, meeting the lofty thresholds of his entirely incentive-based compensation plan and there's little reason to doubt this won't continue."
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