Tesla board chairman calls proxy advisory firm’s criticism of Elon Musk’s $1 trillion pay ‘misguided recommendations’; writes open letter to shareholders

Tesla board chairperson Robyn Denholm has written an open letter to shareholders describing proxy advisory firms – ISS and Glass Lewis’ criticism of Elon Musk’s pay package as ‘misguided recommendations’. Shared by Tesla on X, the letter says that these companies are “fundamentally unable to evaluate companies, like Tesla, that chart their own course and challenge the status quo.

” Denholm urged shareholders to ignore ISS’s and Glass Lewis’s advice for this year’s Annual Meeting which is scheduled for November 8. In the letter, he clarifies that Musk’s $1 trillion pay is a ‘performance incentive award’ which is “contingent on delivering products that support Elon’s vision for Sustainable Abundance, addresses shareholder concerns regarding retention and long-term succession, and ultimately creates extraordinary shareholder value.”

Here’s the full letter shared by Tesla board chairman

Dear Fellow Shareholders, Following recent misguided recommendations from ISS and Glass Lewis regarding Proposals 1, 3 and 4, I want to set the record straight on the reelection of our directors and Elon’s equity incentives. At Tesla, we would rather design visionary systems than be constrained by what’s conventional. We are not afraid to break the mold and we build things the right way. In contrast, ISS and Glass Lewis evaluate all companies and all proposals using the same simplistic, one-size-fits-all framework. They are fundamentally unable to evaluate companies, like Tesla, that chart their own course and challenge the status quo. Thankfully our shareholders have ignored their recommendations – otherwise, you may have missed out on our market capitalization soaring 20x while the proxy advisors time and time again recommended “against” Tesla proposals designed to promote the sort of extraordinary growth we have enjoyed. I encourage you to ignore ISS’s and Glass Lewis’s advice for this year’s Annual Meeting and vote with the Board’s recommendations on all proposals. Let me address some of the key misconceptions reflected in ISS’s and Glass Lewis’s recommendations. But you’re giving him too much money! Elon gets nothing unless shareholders enjoy exceptional investment returns. The 2025 CEO Performance Award was designed with one overarching purpose: to supercharge Tesla’s next phase of exceptional growth, innovation and value creation. There are no layups, and Elon only gets additional voting rights if he delivers on bold market capitalization and operational goals. Furthermore, he only gets to keep those voting rights and obtain the associated economic benefits if he leads Tesla for at least 7.5 more years.This plan delivers enormous upside to shareholders, who will receive approximately nine-tenths of the value created. To put it into perspective, even if Elon only hits the first milestone, he will be delivering approximately a trillion dollars of sustained value to shareholders, almost doubling our current market capitalization, far exceeding any payout to Elon for achieving that tranche. In other words: this performance incentive award is generally contingent on delivering products that support Elon’s vision for Sustainable Abundance, addresses shareholder concerns regarding retention and long-term succession, and ultimately creates extraordinary shareholder value. There is no guaranteed pay because we believe the key to Tesla’s long-term success lies in ensuring alignment of our CEO’s interests with those of our shareholders.But you’re going to cause too much dilution! Shareholders should consider this award to be an investment; not dilution. If the full 2025 CEO Performance Award vests at the highest market capitalization milestone, Tesla’s market capitalization would experience a 7.5x increase in value in exchange for 13.12% dilution by the proxy advisors’ highest estimate. The proxy advisors’ preoccupation with dilution misses the point that the pie must increase by more than seven-fold to get there. In contrast to ISS’s and Glass Lewis’s rigid views of the world – which sees shareholders as “giving away value” – those of us on the Board believe in a reality where every shareholder gets a bigger slice of the growing pie. While I don’t agree with many statements in the proxy advisors’ reports, I agree with ISS’s acknowledgement that our 2025 CEO Performance Award is designed so that “historical value would be realized not only for Musk, but also for the company's shareholders.” But the product goals are way too easy! There are no “easy” milestones under the 2025 CEO Performance Award. To achieve the final Adjusted EBITDA milestone, Elon will need to lead Tesla to $400 billion in Adjusted EBITDA – which means growing our current Adjusted EBITDA by ~26x.This award aims to see Tesla grow larger than any company in history. Each and every operational milestone, including the product goals, must be validated by an extraordinarily ambitious – and sustained – increase in market capitalization. Market capitalization – the market’s verdict on real value – can’t be “gamed” through aggressive pricing or other tactics to create illusory growth; Tesla’s market capitalization targets require profitable, real-world products. If Elon doesn’t deliver sustained increases in market capitalization to validate the success of any product goal, he will earn nothing under such product goal. You didn’t need to do this to keep Elon. What he really wants is votes!The 2025 CEO Performance Award channels Elon’s desire for a stable ownership structure to promote extraordinary growth into what shareholders actually care about: sustained, long-term value creation.While the Special Committee evaluated designing a high-vote structure, it wasn’t feasible under current rules. Instead, the 2025 CEO Performance Award improves upon the wildly successful 2018 CEO Performance Award by separating voting power from economic value to strengthen alignment among Elon, Tesla and shareholders and promotes longer term retention by delaying vesting of any earned share for at least 7.5 years. Voting rights on a tranche are only earned after shareholders win – and win big. But your governance for compensation is flawed!The disinterested Special Committee undertook a seven-month long process to design and negotiate the 2025 CEO Performance Award and Special Share Reserve under the A&R 2019 Equity Incentive Plan. Most importantly, even following that rigorous process shareholders still have the final say.Governance is not an end in and of itself, but a necessary ingredient for durable, long-term value creation. We judge governance by results, and Tesla’s stock has delivered annualized returns of almost 50% since the beginning of 2018, far outpacing the broader market. While ISS and Glass Lewis would prefer that we follow the herd and apply their cookie-cutter guidelines, it is precisely Tesla’s ability to lead, innovate and think independently that has enabled such extraordinary shareholder returns.And your directors are bad at governance!Our longest standing independent director, Ira, is uniquely qualified to serve on our board and lead our governance efforts, having received numerous awards in the corporate governance and growth company spaces. While Ira has been guiding our governance and compensation, total shareholder returns have topped 39,000%. As Tesla continues to grow shareholder value through technological progress, Kathleen’s decades of legal and operating experience and compensation, human capital and management knowledge will be crucial for Tesla to win the AI talent war. To be a great director at Tesla, there’s no question that you must have thick skin. As a trailblazing company willing to break the mold in pursuit of an extraordinary future, it’s no surprise that our directors are easy targets. Despite this, our directors have consistently demonstrated their integrity and risen above the criticisms of those too narrow-minded to appreciate our ambitious vision. The fact is both Ira and Kathleen are widely recognized as corporate governance leaders because they remain passionately focused on our mission to create Sustainable Abundance for all. They have the fortitude to do the right thing – which is often the hard thing – by prioritizing shareholders’ long-term interests rather than caving to short-term desires in support of the whims of critics. Tesla designs and builds robots, but we don’t let robots design our governance structure as ISS and Glass Lewis would prefer. That is why we have assembled a Board with a wide array of perspectives, from people with varied experiences. In contrast to the formulaic approach reflected in ISS’s and Glass Lewis’s recommendations on our directors and Proposals 3 and 4, we on the Tesla Board don’t see governance as a one-size-fits-all exercise. We view governance as a dynamic process, where we act with transparency and integrity as all of our directors work together to deliver financial value to our shareholders. The way we practice governance demands bold, deliberative and thought-provoking leadership as we face new challenges, navigate new paths, and ultimately drive Tesla into an exciting future with Sustainable Abundance for all. Our more thoughtful governance process requires dedication and contributions from incredible directors like Ira, Kathleen and Joe.So, in evaluating these recommendations from ISS and Glass Lewis, as well as any third-party advice regarding your vote at this year’s Annual Meeting, we encourage you – shareholders who have made an actual financial investment in Tesla’s future – to make your own decision rather than following proxy advisors who don’t own a single share of Tesla stock. I think it is noteworthy that ISS and Glass Lewis have both announced plans to update their product offerings, with Glass Lewis admitting that “the traditional one-size-fits-all model of proxy advice no longer meets the needs of a diverse client base.” So, their models are changing, just not today, and not for our Annual Meeting. Well, at Tesla, we know that progress waits for no one and speed is crucial to success. While the proxy advisors tinker with their models, I urge you to take back your vote. If you prefer that Tesla turn into just another car company mired in the ways of the past, then you should follow ISS and Glass Lewis. If you believe that Tesla, under the visionary leadership of Elon and the oversight of a Board that includes business leaders with integrity like Ira, Kathleen and Joe, then you should vote with Tesla.Thank you for your continued support of Tesla. Very truly yours, Robyn DenholmChairperson of the Board