Tesla is gearing up for its annual shareholder meeting amid wild stock fluctuations and mounting pressure on Elon Musk

Dave Mosher/InsiderSpaceX founder Elon Musk gestures during a press briefing on March 2, 2019. The event followed the successful launch of Demo-1: the first mission to launch Crew Dragon, a commercial spaceship designed for astronauts, into orbit.

  • 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 $US20 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 $US200 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

flickr/Steve JurvetsonOne major proxy advisor is urging shareholders to not re-elect Ira Ehrenpreis

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.”

Tesla defended Ehrenpreis’ re-election in its proxy statement.

“We believe that Mr. Ehrenpreis possesses specific attributes that qualify him to serve as a member of the Board and to serve as chair of each of our Nominating and Corporate Governance Committee and our Compensation Committee, including his experience in the Cleantech and venture capital industries,” the company said.

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 per cent 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 per cent of outstanding shares. As such, support for this proposal is warranted.”

In its proxy statement, Tesla urged shareholders to vote for the proposal:

“While we offer to our employees restricted stock units, which tend to retain some value even if the market value of our stock decreases, the equity-based compensation to our directors is exclusively in the form of stock options, which have value only to the extent, if any, that our stock price increases following their grant. Consequently, a large portion of our non-employee directors’ compensation is entirely at risk,” the company said.


Proposal 3: Approving the company’s employee stock purchase plan

Tesla Motors

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 incentivise 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.


Proposals 4 and 8: A simple majority vote

Tesla

Two separate proposals deal with eliminating a supermajority vote. One is supported by Tesla’s board, and one is not.

James McRitchie, an activist investor who runs the site CorpGov.net has submitted proposal 8, which urges Tesla to adopt a simple majority and eliminate the current supermajority voting requirements, which he says could enhance shareholder rights.

“Large funds, such as T. Rowe Price, BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management,” the proposal reads. “Currently a 1 % special interest minority of shares can frustrate the will of shareholders casting 66% of shares in favour. In other words a 1 % special interest minority could have the power to prevent shareholders from improving our corporate governance.

ISS supports the measure, but Tesla and Glass-Lewis are urging investors to vote against it.

“The Board has determined that this proposal would not serve the best interests of Tesla or our stockholders, because we have separately included a proposal (Proposal Four) for our stockholders to directly approve amendments to each of our Certificate of Incorporation and our Bylaws to eliminate any voting requirements therein that require greater than a majority vote of our stockholders,” the board said in its opposing statement. “Unlike this proposal, which is advisory and non-binding, Proposal Four would result in our implementing such amendments upon approval, and the Board urges our stockholders to vote for Proposal Four.”

Proposal four, which the board supports, also eliminates the supermajority vote requirement for amending the company’s governing documents.


Proposal 5: Reducing director terms from three to two years

flickr/CEBIT AUSTRALIARobyn Denholm took over as head of Tesla’s board in November.

Tesla is asking investors for permission to shorten the term lengths that directors serve on its board from three years currently to two years. The Board is urging investors to vote for the measure, something both proxy advisors also support.

“While this proposal would not result in a fully declassified board, the reduction from three to two board classes would represent an incremental increase to overall board accountability,” ISS writes. “As such, support for this proposal is warranted.”


Proposal 6: Ratifying Tesla’s outside auditor

Tesla needs shareholder approval to continue its use of Pricewaterhouse Coopers as the company’s auditor and outside public accounting firm. Both proxy advisors also support the motion, as is typical of most companies’ annual meeting.


Proposal 7: Establishing a public policy committee

Jing Zhao, who owns 12 shares of Tesla, has proposed a public policy committee to “oversee the Company’s policies including human rights, environment, domestic governmental regulations, foreign affairs and international relations affecting the Company’s business.”

Zhao argues that “many companies, such as the dead Yahoo and the troubled facebook [sic], failed without a public policy committee. The Company’s current Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are not adequate to deal with the new age of global competition, confusion, conflicts and confrontation. The Company needs not only an independent Chairman (or Chairwoman), but also a public policy committee..”

Tesla’s board does not support the proposal, arguing that it already has the necessary powers to guard against public policy issues.

“Ultimately, the Board is responsible for overseeing the major risks that we face, and its members represent a unique collection of diverse backgrounds and experience in a variety of industries that allows them to react to new risks and business conditions,” it said in an opposing statement.

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