Ron Baron Backs Elon Musk’s Compensation Ahead of Shareholder Vote

Tesla investor Ron Baron has backed CEO Elon Musk’s $56 billion pay package even as some proxy firms are advising investors to vote against the proposal at the annual meeting which is set for later this month.

Tesla is the biggest holding in the Baron Partners Fund (BPTIX) which is his oldest and biggest fund. Baron has made strong gains on his 2014 investment in Tesla and is among the biggest backers of the company along with ARK Invest’s Cathie Wood.

In his open letter, Baron said that shareholders should honor the 2018 agreement which was voided by a Delaware judge earlier this year. His comments are in line with what Tesla has told shareholders.

Ron Baron Backs Elon Musk’s Compensation

Notably, Musk does not receive any fixed pay, incentive, or bonus from Tesla and all his compensation is tied to stock options which are contingent upon the company hitting several milestones like profitability and market cap.

In his letter, Baron argued that Tesla shareholders also benefited as the company hit those “aggressive performance metrics that few in 2018 believed could be achieved.”

He added, “Tesla’s market cap when Elon’s pay package was approved on March 21, 2018 was $53.5 billion. It is approximately $550.75 billion today, after having reached a high watermark of $1.24 trillion in November of 2021. He performed under his compensation contract. He earned his pay.”

Baron Calls Upon Shareholders to Approve His Pay Package

Despite his many controversies, Elon Musk has been a net positive for Tesla. In his letter, Baron said, Elon is the ultimate “key man” of key man risk. Without his relentless drive and uncompromising standards, there would be no Tesla.

Baron called upon fellow shareholders to vote for the package and said, “If shareholders want to protect and grow their investment, they must AGAIN approve his compensation contract.”

Tesla Is Building Robots and Robotaxis

Tesla is much more than an automaker and is also making robots as well as soon-to-be unveiled robotaxi which would be named CyberCab. Speaking with CNBC, Baron said, “Tesla, I think in the next 15 years, next 10 years, we’re going to make four or five, six times our money, but I can’t even put a top on how much we’re going to make … because its robotics business is going to be unbelievable.”

Musk Said He Needs 25% Voting Rights

In a post on X in January, Musk said “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned.”

Currently, Musk owns around 13% stake in Tesla and his ownership fell after he sold shares to fund his Twitter acquisition. His public call for higher voting rights in Tesla was seen as a ploy to pressure Tesla’s board for a new compensation structure. Tesla shareholder Richard Tornetta sued Musk and the board in 2018 over Musk’s compensation structure and a Delaware judge voided the package.

While Musk got billions of dollars as part of the compensation package, he was not required to work full-time at the company. Tesla has proposed the shareholders to again approve the compensation package.

Proxy Firms Advise Investors to Reject Musk’s Compensation

In its report, proxy firm Institutional Shareholder Services (ISS) termed Musk’s pay package as “outsized from the start.” ISS said that the package “failed to accomplish certain of the board’s stated objectives” including requiring that Musk “more closely on the Tesla organization, as opposed to his other businesses.”

Another proxy firm Glass Lewis which had advised shareholders to vote against Musk’s package in 2018 also, has yet again called upon investors to vote against the proposal. Among others, it listed Musk’s association with other companies as a “slate of extraordinarily time-consuming projects”

It added, “The excessive size of the award, both on a pure dollar basis and in terms of the dilutive effect upon exercise, remains very much top of mind.” According to Glass Lewis, “The company’s provided rationale does little to combat these concerns given their proportionate magnitude.”

Tesla Also Calls Upon Shareholders to Vote for Musk’s Compensation

Tesla has called upon investors to approve Musk’s package. Musk himself is reaching out to shareholders, predominantly retail investors who own roughly 30% stake in the company. Musk’s compensation turned out to be the biggest in corporate history even as the company argues that shareholders also benefited when the shares rallied.

Tesla Stock Has Underperformed in 2024

Tesla stock is down almost 30% this year as the EV company battles a slowdown in EV sales coupled with a worsening price war. While Tesla bulls like Baron and Wood expect the stock to be worth a lot more over the next few years a section of the market is quite circumspect about the company’s near-term prospects.