Benzinga - by Shanthi Rexaline, Benzinga Editor.
A legal expert and former New York City-based portfolio manager has jumped into the debate surrounding Tesla, Inc.’s (NASDAQ:TSLA) shareholder vote to reinstate CEO Elon Musk‘s 2018 compensation plan, which was voided by a Delaware court, citing the lack of sufficient information provided to shareholders.
What Happened: Lawrence Fossi, in a Substack post, delved into why the Tesla board probably chose to seek a shareholder vote for ratifying the old pay package rather than “starting from scratch with a new grant.”
“I think there are two clear answers, one for Tesla and one for Musk,” he wrote.
If the board were to award a new compensation plan for Musk, matching the one from 2018, Tesla would show “massive losses for many years to come,” according to Fossi.
“And for Musk, such a package would create targets that would be all but impossible to achieve.”
Fossi detailed how the 2018 award was created, noting that Tesla had managed to whittle down the grant's $55.8 billion potential value to merely $2.6 billion as a compensation expense after various discounts.
The Hurdles: Fossi wrote that a new stock-based compensation expense for Musk is no longer possible because Tesla's current share price “is more than seven times greater than the split-adjusted price at the time of the January 2018 grant.”
“Even with the most heroic efforts of a compensation consultant, such an expense would be certain not only to wipe out any earnings for years to come, but also to put the income statement deep into the red.”
Musk's Not Enthusiastic Either? Fossi suggested Musk himself might be hesitant about a new plan. He argued that replicating the past stock price gains used to justify the 2018 award is unlikely as Tesla’s “growth story is over. It's now a shrinkage story.”
“Musk is desperate, and rolling the dice on his latest ‘robotaxi’ gambit,” Fossi wrote, adding that the CEO “cannot replicate the stock pumping feats that he performed for the 2018 version.”
Fossi also raised the possibility that reinstating the 2018 package was an “audacious effort by Musk to engage in income tax avoidance” due to the nature of his stock option plan.
An Old Tesla Skeptic: Fossi, whose bio on X reads "Annoying Elon since 2016," has been a vocal critic of Tesla and Musk under the pseudonym “Montana Skeptic.”
He has claimed that Musk had called up his former workplace, asking for Fossi to be fired, and even threatened to sue him for his critical commentary. Musk has never responded publicly about this yet.
Why It Matters: Tesla's stock is still a far cry from its all-time high of $414.50 hit on Nov. 4, 2021, although the company remains the most valuable automaker with a market capitalization of $556 billion, as of Thursday's market close.
Musk's original package from 2018 was worth up to $56 billion, but due to Tesla’s recent stock price decline — which stems from underwhelming revenues and margins — its current potential value is approximately $47 billion.
In February, a regulatory filing revealed Musk owns 20.5% of Tesla, holding 715,022,706 shares. However, he has expressed a desire to increase his stake to about 25% to maintain significant influence over the company as it expands its efforts in AI and robotics.
Tesla's board is also doing everything possible to convince its large retail investor base to vote for reinstating Musk's 2018 award before its June 13 annual shareholder meeting. The vote is advisory, which means that the outcome does not legally obligate the company’s board of directors to take any specific action.
Tesla ended Thursday’s session up 0.49% at $174.84, according to data from Benzinga Pro.
(with inputs from Ramakrishnan M.)
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