This year, Tesla shareholders are being asked to re-ratify Elon Musk’s 2018 mega pay package – amounting to $40B+ – which was already struck down by a Delaware judge. United Church Funds (UCF), a Tesla shareholder, recently co-signed a letter to fellow shareholders urging a vote against this pay package, along with the re-election of two Tesla Board directors who have demonstrated a lack of independence and fiduciary duty.

“This vote is fundamentally about fair distribution of income among executives and shareholders at Tesla, but it is also an important data point in the larger context of rapidly escalating corporate executive pay and the resulting income inequality that is pervasive across America,” said Matthew Illian, UCF’s Director of Responsible Investing. Illian pointed to a recent Associated Press report which found that CEOs made 200 times what workers at the middle of the company’s pay scale received last year on average. And while wages are up across the board, the median CEO pay package was up nearly 13% in 2023, while worker wages rose just over 4%.

Back in 2018, 73% of Tesla shareholders supported the unprecedented pay package of stock options benefiting Musk for hitting growth targets. Members of Tesla’s Board’s argued that Musk should receive the full award, since it was previously approved by shareholders. However, UCF maintains there is much more to consider.

The Delaware case was brought on behalf of a Tesla investor who brought into question the fairness of how Musk’s pay package was negotiated and communicated to shareholders. In the decision, the Delaware judge found “extensive ties” by prior board members that made overseeing the fair negotiation impossible. Additionally, the ruling found that Tesla “misleadingly omitted details” when describing how Elon’s pay package was designed in the first place and placed no upper-end value on what this pay package would be worth if the targets were, in fact, hit.

After the Delaware ruling was made public this past February, a “Special Committee” consisting of one person from Tesla’s Board was hastily formed by the Board and tasked with recertifying the 2018 results. Critically, this Special Committee of one did not take the time to engage with compensation consultants. The Board appears to have applied the same “recklessly fast approach” to the ratification of the 2018 pay package, according to the judge’s ruling.

For these reasons and others outlined in the letter sent to fellow investors, UCF believes a vote against re-ratifying this 2018 pay package is warranted.

Additionally, UCF and other investors are calling for a vote against two of Tesla’s Board of Directors – Kimbal Musk and James Murdoch – given concerns over a previously described lack of independence.

“The two directors up for re-election have particularly close personal ties to the CEO,” the investor letter reads in part. “Kimbal is Musk’s brother and has been on the Board for 20 years, and James Murdoch is a longtime personal friend of the CEO. Before Mr. Murdoch joined the Board, he took several family vacations with Elon Musk. In fact, it was after one such vacation that he was invited to join the Board. Mr. Murdoch also has a personal relationship with Kimbal Musk, testifying in court that he attended Kimbal’s wedding and dined with his family.”

Illian pointed out: “This is yet another example of why it is vitally important for investors to remain alert to all shareholder voting matters. UCF continues to serve its clients faithfully by exercising a proxy voting policy that seeks to align votes on behalf of its faith-based and values-aligned clients.”

On June 13, 77% of Tesla shareholders voted to ratify Elon Musk’s pay package. However, it should be noted that the shareholder vote is not the final word on the matter, and future litigation is all but certain. In addition, UCF was pleased that many of the largest pension funds voted with us, and we remain committed in our efforts to hold corporate leaders accountable for their fiduciary and ethical responsibilities.