Why is Norway Wealth Fund Voting Against Elon Musk’s Compensation at Tesla?

Norway’s $1.7 trillion sovereign wealth fund, the world’s largest, announced on Saturday its intention to vote against the ratification of Tesla CEO Elon Musk’s $56 billion pay package. This decision comes ahead of a shareholder vote scheduled for next week and follows a Delaware judge’s earlier invalidation of the compensation package.

Elon Musk’s pay package, approved in 2018, is the largest in corporate America for a chief executive. The package, designed to incentivize Musk to achieve ambitious milestones for Tesla, was voided earlier this year by a Delaware judge who deemed the amount “unfathomable” and unfair to shareholders. The package, which ties Musk’s compensation to Tesla’s market capitalization and operational targets, has been a point of contention due to its massive scale and the potential dilution of shareholder value.

Norway’s Wealth Fund Position

Norges Bank Investment Management (NBIM), which manages Norway’s sovereign wealth fund, expressed appreciation for the significant value generated under Musk’s leadership since 2018. However, NBIM voiced concerns over the total size of the award, its structure given performance triggers, dilution effects, and the lack of mitigation for key person risk. In 2018, the fund had also voted against Musk’s pay package.

“We remain concerned about the total size of the award, the structure given performance triggers, dilution, and lack of mitigation of key person risk,” NBIM stated. Despite these concerns, NBIM acknowledged Musk’s contributions to Tesla’s success but emphasized the need for a more balanced compensation structure that aligns with long-term shareholder interests.

Influence of Norway’s Wealth Fund

As Tesla’s eighth-largest shareholder, holding a 0.98% stake valued at $7.7 billion, the wealth fund’s voting decisions carry significant weight. NBIM has been a vocal critic of excessive CEO pay, particularly in the United States. Last year, it voted against more than half of U.S. CEO pay packages exceeding $20 million, citing misalignment with long-term value creation for shareholders.

“We will continue to seek constructive dialogue with Tesla on this and other topics,” NBIM added, signaling ongoing engagement with the electric vehicle manufacturer on governance and compensation issues.

Union and Labor Rights

In addition to voting against Musk’s pay package, NBIM announced its support for a shareholder proposal urging Tesla to adopt a policy ensuring freedom of association and collective bargaining rights. This proposal is a significant win for labor unions seeking to increase their influence over Tesla, particularly as the company faces industrial action in Sweden. Tesla’s mechanics have been on strike since October 27, marking one of the country’s longest labor disputes.

Norway’s wealth fund, which owns 1.5% of all the world’s listed stocks, has historically supported labor rights. In 2022, it backed a similar shareholder proposal at Tesla, advocating for policies respecting labor rights, including freedom of association and collective bargaining.

Tesla’s Labor Disputes

Tesla has faced backlash in the Nordic region from unions and some pension funds over its refusal to accept demands from Swedish mechanics for collective bargaining rights covering wages and working conditions. The ongoing labor disputes highlight the broader challenges Tesla faces in aligning its business practices with regional labor standards and expectations.

Corporate Governance and Board Composition

The wealth fund also revealed its voting intentions on other key proposals at Tesla’s upcoming annual meeting. Notably, NBIM will support the proposal to transfer Tesla’s state of incorporation to Texas from Delaware, a move Musk pursued following the invalidation of his pay package by a Delaware judge. This relocation is seen as a strategic decision by Musk to benefit from Texas’s more favorable regulatory and business environment.

Additionally, NBIM will vote in favor of re-electing Musk’s younger brother, Kimbal Musk, to Tesla’s board of directors. Kimbal Musk, 51, has been a member of Tesla’s board since 2004 and has played a significant role in the company’s strategic decisions. The wealth fund had previously supported his election in 2018 and continues to back his re-election.

Implications for Tesla Shareholders

The upcoming shareholder vote on June 13 will be a pivotal moment for Tesla, as shareholders decide on Musk’s pay package and the re-election of directors, including Kimbal Musk. The wealth fund’s stance against the pay package and its support for labor rights and governance changes reflect broader concerns among institutional investors about corporate governance and executive compensation.

Broader Impact on Corporate Governance

Norway’s wealth fund’s decision to vote against Musk’s pay package underscores a growing trend among institutional investors advocating for more balanced and sustainable executive compensation practices. Excessive CEO pay has been a contentious issue, with critics arguing that it can lead to misaligned incentives and undermine long-term shareholder value.

By taking a stand against Musk’s pay package, the wealth fund is reinforcing its commitment to responsible investment principles and long-term value creation. This move also sends a powerful message to other companies and their shareholders about the importance of fair and transparent compensation structures.

As the world’s largest sovereign wealth fund, Norway’s $1.7 trillion fund plays a crucial role in shaping corporate governance practices and promoting responsible investment. Its decision to vote against Elon Musk’s $56 billion pay package at Tesla highlights ongoing concerns about executive compensation and the need for more balanced and sustainable practices.

The fund’s support for labor rights and its voting intentions on other key proposals at Tesla’s annual meeting further demonstrate its commitment to promoting long-term value creation and responsible business practices. As Tesla shareholders prepare to vote on these critical issues, the outcome will likely have far-reaching implications for the company’s governance and its relationship with investors and labor unions.

Elon MuskMuskNorwayTeslaWhy is Norway Wealth Fund Voting Against Elon Musk's Compensation at Tesla?