Vanguard Vote Switch Key to Passing Elon Musk's $56B Pay Package

Vanguard voted in favor of Elon Musk's $56 billion pay package, citing Tesla's strong performance. The fund manager had initially opposed the arrangement in 2018. Vanguard, owning 7% of Tesla, is the company's largest shareholder after Musk, making their support pivotal in passing the compensation plan.

Boston Brand Media brings you the latest news: Vanguard, Tesla's (TSLA.O) largest external shareholder, announced it supported CEO Elon Musk's $56 billion compensation package, highlighting the company's performance as a key factor. This endorsement contributed to the approval of the record-breaking deal on Thursday.

In a note obtained by Reuters, Vanguard revealed it had initially voted against Musk's pay package in 2018 due to concerns over its substantial size, which they felt might not have been warranted by the company's performance at the time.

Vanguard's decision to vote in favor of Elon Musk's $56 billion pay package at Tesla was influenced by several factors, including the strong alignment of executive pay with shareholder returns since 2018. Despite initially opposing the arrangement in 2018, Vanguard's current support was motivated by the board's assertion of the motivational value for Musk in preserving the original deal.

The decision was made public in a note that will be available on Vanguard's website, ensuring transparency for their over 50 million investors. Vanguard, which holds 232 million Tesla shares, equivalent to about 7% of the company, ranks as the second-largest shareholder after Musk's 13% stake. While certain externally-managed Vanguard funds vote independently, the majority aligned with the decision to ratify Musk's pay package.

Boston Brand Media looked into the vote following a previous invalidation of Musk's pay by a Delaware judge in January, prompting renewed scrutiny from proxy advisers and other large investors who had concerns over the substantial amount involved.

This series of events underscores the complex dynamics surrounding executive compensation in major corporations and the significant influence of institutional investors like Vanguard in shaping corporate governance decisions.

Tesla aimed to secure support from its retail shareholders for various matters, including Elon Musk's pay and relocating the company's incorporation to Texas. However, Vanguard and other major index fund managers, with Vanguard holding $9 trillion in assets, wielded significant influence over the vote. Vanguard acknowledged Musk's pay as unusually high but justified it based on Tesla's exceptional shareholder returns, ranking in the top 2% among Russell 3000 companies from 2018 to 2023. Despite recent performance challenges with a 26.5% stock decline this year amid fierce competition in the electric vehicle market, Vanguard did not address these current issues in its note. The approval on Thursday does not resolve a Delaware lawsuit challenging Musk's pay, expected to prolong legal proceedings for months.

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