- Tesla’s annual shareholder meeting is set to kick off at 2:30 PM local time on Wednesday in California.
- Investors will be voting to re-elect two board members, as well as on proposals relating to supermajority voting and a public policy committee.
- A major proxy advisory service is urging shareholders to vote against Ira Ehrenpreis’s re-election.
- Visit Business Insider’s homepage for more stories.
Tesla shareholders will convene for the company’s annual investor meeting on Tuesday afternoon in California, amid one of the company’s most challenging months yet.
Since they last assembled in 2018, Tesla’s market value has declined by more than 30% thanks to a failed bid to take the company private by CEO Elon Musk, which resulted in $20 million fines for himself and the company as part of a settlement with federal regulators.
In April, shortly after Tesla and the SEC agreed on new terms regarding Musk’s social media usage to end the months-long legal battle, Tesla announced that four members of its board of directors will leave their posts after their tenures are up.
Brad Buss and Linda Johnson Rice will leave the board following Tuesday’s meeting, and Steve Jurvetson — who returned from an extended leave of absence stemming from sexual misconduct allegations at his venture capital firm in April — will leave in 2020 along with Antonio Gracias shortly after.
In addition to the board reshuffling, investors will have plenty of other issues on their minds after the challenging last 12 months of Tesla’s business. Falling deliveries and quarterly earnings in the first half of 2019 also weighed on the stock, which traded below $200 per share in May before recovering slightly. In past years, Tesla’s stock price has risen dramatically following announcements at the company’s annual meeting.
This year, shareholders will consider the re-election of two board members, new equity incentive and employee stock purchase plan, recertification of the company’s outside accounting firm, a proposed public policy committee, and proposed simple majority rule to replace the current super majority.
Here are all the proposed items for Tesla’s annual shareholders’ meeting on Tuesday:
Proposal 1: Re-electing two directors
Tesla’s directors have nominated Ira Ehrenpreis, the second-longest serving board member after Kimbal Musk, and Kathleen Wilson-Thompson for re-election to the board. If re-elected, which is likely, they will serve for three years, as is the board’s current structure. However, if a proposal to reduce director terms to two years is successful, they will serve the shorter amount of time.
A major shareholder advisory service is urging investors to vote against the nomination of Ehrenpreis, due to Tesla’s skyrocketing equity awards.
"Tesla does not have traditional incentive programs and, while no NEOs received bonuses in 2018, equity awards are sizable and lack performance vesting conditions,’ Institutional Shareholder Services, or ISS, said in a May report.
"Investors increasingly expect at least a meaningful portion of long-term incentives be tied to pre-set, disclosed forward-looking performance goals. Concerns are also raised regarding the magnitude of grants to other NEOs, as all but one of the NEOs received 2018 pay in excess of the median CEO in the ISS-selected peer group."
"While these concerns would normally warrant an adverse recommendation for the advisory compensation proposal, the company has adopted a triennial say-on-pay frequency and will not present the proposal again until 2020," ISS continued. "In the absence of a say-on-pay proposal on the ballot, shareholders are advised to vote against compensation committee member Ira Ehrenpreis."
Glass-Lewis, the other major proxy advisor, does not have the same concerns about Ehrenpreis’ re-election and recommends a "for" vote on the proposal. Tesla’s board of directors also recommends a "for" vote.
Both Tesla and the proxy advisors recommend director Kathleen Wilson-Thompson for re-election.
Proposal 2: A new equity incentive plan
Benjamin Zhang/Business Insider
Tesla is asking shareholders for approval to issue 12.5 million new shares as part of a new equity incentive plan. This will allow the company to continue issuing stock as compensation for employees and executives.
ISS and Glass-Lewis are worried the new issuances will dilute shareholders’ total equity by about 6.8%, and are therefore urging investors to reject the proposal.
"Stock purchase plans enable employees to become shareholders, which gives them a stake in the company’s growth," ISS said in its report.
"However, purchase plans are beneficial only when they are well-balanced and in the best interests of all shareholders. From a shareholder’s perspective, plans should have reasonable purchase discounts and offering periods, and they should limit the number of shares allocated. In this case, the plan’s purchase price is at least 85 percent of fair market value and the offering period is not longer than 27 months. Also, the number of shares allocated to the plan is not more than 10 percent of outstanding shares. As such, support for this proposal is warranted."
Proposal 3: Approving the company’s employee stock purchase plan
Tesla allows employees to purchase stock at a significant discount, and the Board has already approved a continuance of this plan. Now it needs shareholder approval.
"Tesla strongly promotes a culture of stock ownership in order to incentivize employees to contribute to our successes, from which they reap the benefit of increases in our stock’s value," the company said in its proxy statement. "For this reason, in addition to establishing minimum stock ownership and holding periods for our directors and named executive officers, we offer equity awards to all of our employees."
ISS and Glass-Lewis also support the proposal as employee stock plans "align the interests of employees and shareholders and encourage a sense of ownership at companies," Glass Lewis writes.
- Here’s the pitch deck Careem used to secure its first round of venture capital, which led its first investors to a 100x return when Uber bought the company this year
- I drove an $86,000 Toyota Land Cruiser to see if the off-road legend could live up to its incredible reputation
- What it was like to own and drive a ‘low-tech’ car