Which Tesla Shareholder Proposals Could Win Support?

The stereotypical Tesla TSLA retail investor agrees with the values and opinions of CEO Elon Musk, such as the enormous pay package being voted on at the company’s June 13 annual meeting. That puts him at odds with some big institutions that are lining up to reject it this proxy-voting season.

In 2018, such enthusiastic shareholders approved a compensation package that was worth around $56 billion at the time, which was said to be the largest in history. In January, a Delaware judge voided the award, saying investor disclosure was inadequate. So, Tesla has proposed a new vote on the old pay package. Already, big proxy advisors are recommending to big investors that they vote against it. Among those voting no are the giant California pensions CalPERS and CalSTRS, as well as Norway’s sovereign wealth fund.

“It’s unclear to me that it’s going to pass, but if I had to pick a side, it passed in 2018,” and will do so again, says Seth Goldstein, equity strategist at Morningstar. Part of it is the cultist nature of the company’s shareholder base. But there are fundamental reasons, Goldstein says. “Since 2018, it went from a high-end automaker with negative cash flow to a prominent major automaker that sold 1.8 million vehicles last year. That’s a wild success story by any measure.”

So why the drama? Tesla faces a lot of strategy decisions around autonomous driving and bringing out more affordable models. “If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal,” Robyn Denholm, the company’s chair, wrote to investors. Musk believes he needs 25% voting control of Tesla stock to be comfortable growing it into an artificial intelligence and robotics leader, writes Barron’s, and the 2018 pay package going back into effect gives him roughly 20%.

Tesla has a famously cozy board: “A number of the board members have close connections to Musk, and many believe that there are not enough independent members willing to challenge the enigmatic character,” writes Andrew Spurr of Morningstar Sustainalytics’ proxy-voting advisory service.

There’s also the issue of the compensation package’s size at a time that the electric vehicle market has turned fiercely competitive. So far this year, TSLA shares are down 31.3%, versus a 13% gain for the SPDR S&P 500® ETF Trust. And restoring the package could create large accounting costs. If the new package passes, it’s likely to be the target of more lawsuits. The New York Times has a good piece handicapping the various scenarios.

In a related move, Tesla is also proposing shareholders approve converting the company from a Delaware corporation to a Texas corporation. Tesla relocated from California to Texas in 2021. “The catalyst for this proposal appears to be the decision by the Delaware judge” to challenge the compensation package, writes Spurr.

Still, it’s not unheard of for proposals from independent Tesla shareholders to win. In 2021, Calvert Research & Management sponsored a winning shareholder resolution asking the company to provide more data about its diversity, equity, and inclusion efforts, arguing that increased diversity at Tesla will help ensure that it remains competitive and innovative.

Which Tesla Proposals Could Receive Decent Support?

Tesla shareholders are considering 12 proposals altogether. You can find the full list, as well as Tesla’s recommendations, on the company’s proxy.

- Harassment and discrimination. One proposal asks for an annual report describing and quantifying its efforts to prevent harassment and discrimination against its employees. Charges of harassment and discrimination at its California plants resulted in class action lawsuits filed by the California’s Department of Fair Employment and Housing and the US Equal Employment Opportunity Commission. That “represents significant reputational, operational and litigation risks to the company and its shareholders and creates difficulties attracting and retaining talent,” writes Ignacio Garcia Giner of Morningstar Sustainalytics. A similar proposal at Wells Fargo’s WFC 2024 annual meeting received 29% support.

In an interview, Kristin Hull of Nia Impact Capital, which also filed the joint proposal, says: “We are here to hold the company accountable. We expect all boards of directors to oversee the CEO.”

Adds Hull: “You really need to have the human capital management side as part and parcel of the investment thesis because who actually builds these cars? They need the human capital management policies and practices in place to have a really strong recruitment mechanism for top talent.”

- Simple Majority Vote. Another proposal calls for a simple majority vote as the standard for a vote to pass. That’s been a popular theme this proxy-voting season, where 15 similar proposals have received more than 50% support from independent shareholders at companies including ConocoPhillips COP.

- Freedom of Association. Still another asks the board to uphold employee rights to freedom of association and collective bargaining and not to interfere when workers try to unionize. Such proposals are becoming increasingly popular. In 2023, 52% voted for a similar policy at Starbucks SBUX.

- Deep-Sea Mining Moratorium. And another asks Tesla to commit to a moratorium on sourcing minerals from deep-sea mining. Already, 48 companies have committed to this, including a number of Tesla’s competitors.

At Walmart, Restaurant Brands, and Paramount Global, Some Attention-Getting Votes

Analysts believe proxy-voting support above 25% catches the board’s attention. Following is a list of attention-getting proxy votes at Walmart WMT, Restaurant Brands QSR, and Paramount Global PARA. You’ll find the links to the company proxies, which include the proposals and the company recommendations, in the items below.

- Community impact. Some 34.5% of Walmart’s independent shareholders, or 15.4% of the overall vote before adjusting for insider ownership, voted in favor of an audit analyzing Walmart’s adverse impacts on Black, Indigenous, and people of color.

- Gun violence. Of Walmart’s independent shareholders, 42.8%, or 19.2% of the overall vote before adjusting for insider ownership, supported an independent review of the impact of Walmart policies and practices on workplace safety and violence, including gun violence. The report would include recommendations that will help Walmart create safer work environments and prevent workplace violence.

- Water risk. At Restaurant Brands, 41.7% of independent shareholders, or 28.7% of the overall vote before adjusting for insider ownership, supported a report on the company’s water-risk exposure in its supply chain, and how it plans to prepare for water supply uncertainties associated with climate change.

- Plastics risk. Also at Restaurant Brands, 40% of independent shareholders, or 23.7% of the overall vote before adjusting for insider ownership, asked for a report on how it could reduce its contribution to ocean plastics pollution.

- AI and automation. At Paramount Global, 49.1% of independent shareholders, or 2.1% of the overall vote before adjustments, asked the company to explain its use of AI and the board’s role in overseeing AI usage.