By Ross Kerber
(Reuters) – Tesla (NASDAQ:)’s largest outside investor Vanguard said it voted in favor of CEO Elon Musk’s $56 billion pay package, citing the company’s performance, which helped it pass the record-breaking arrangement on Thursday.
In a note seen by Reuters, Vanguard said it had voted against Musk’s compensation package when it was first approved by shareholders in 2018 because of its potential size, which may not have been justified by performance.
But “given the strong alignment between executive compensation and shareholder returns since 2018 and the benefits the board claimed regarding the motivational value to the CEO of retaining the original deal,” the Vanguard-advised funds voted at the annual meeting of Tesla for the ratification. the note.
The note will be made available to the fund manager’s more than 50 million investors on Vanguard’s website on Friday.
Vanguard held 232 million Tesla shares, or about 7% of the company, as of March 31, after Musk’s 13% stake. Although certain externally managed Vanguard funds vote separately, a Vanguard spokesperson said the note descriptions covered the majority of the funds.
Musk’s pay was invalidated by a Delaware judge in January, leading to Thursday’s vote. Top proxy advisors and several major investors had come out against the compensation, partly over concerns that it would be too much money.
Tesla had looked to its large retail shareholder base to approve Musk’s pay and other matters, including re-electing two directors and moving the company’s incorporation to Texas.
But Vanguard, with total assets of about $9 trillion, and other major index fund managers were likely always key to the vote. Representatives from Vanguard rivals BlackRock (NYSE:) and State Street (NYSE:) declined to comment on their voting record on Thursday.
Tesla did not reveal exact voting figures on Thursday, which are expected to be revealed in the coming days.
In its note, Vanguard said that while Musk’s salary was “a substantial outlier” among CEOs, Tesla’s shareholder returns between 2018 and 2023 were in the 98th percentile among all Russell 3000 companies. ‘There are few companies that have created so much absolute market value growth. as Tesla,” Vanguard said.
Tesla’s performance has deteriorated in more recent periods, including a 26.5% share price decline so far this year, amid intensifying competition from other electric vehicle makers. Vanguard’s comment did not address current performance. The stock closed 2.9% higher on Thursday.
Vanguard also said its funds supported the proposal to move Tesla’s incorporation to Texas because “we noted no material differences in shareholder rights between the state of Delaware and the state of Texas.”
Thursday’s approval does not resolve a lawsuit over Musk’s pay package in a Delaware court that some legal experts believe could last months.
