The Clear Reason Why Musk's Pay Package Will Get Approved

Tesla’s CEO Elon Musk’s pay package vote is on its way to being passed, meaning that Tesla stockholders are planning to send $56 billion dollars his way. 

The vote is currently passing with wide margins, including a shift to change Tesla’s place of incorporation from New Castle, Delaware, to Austin, Texas, its headquarters. 

Disaster Awaits if Approval isn’t Given

When a single man is majorly responsible for more than $735 billion dollars in added value over the past six years, some compensation is well deserved. 

It looks as though Tesla stockholders are in agreement, especially if rejecting the deal would be catastrophic for the stock. 

Scrolling through the endless abyss that is Twitter, it was puzzling to see Tesla cynics and short-sellers truly believe in their hearts that institutional investors, most of whom are long on Tesla and are active managers of their funds, plan to vote against Musk’s compensation plan. 

You don’t need a financial degree to see how voting against the plan could cause the stock to tumble. 

This is especially true given the fact that large institutional investors can’t simply trade in and out of large positions. Voting against the compensation plan would be the equivalent of shooting themselves in the foot, no matter how much they may dislike Musk in the privacy of their board rooms. 

Some analysts predict Tesla will drop toward $150 if the vote does not pass, but even with that gloom prediction, short-sellers could be correct, and the package does not get approved. After all, Musk has built out quite a list of enemies in the past couple of years. 

What the Major Players Have to Say

For now, the public is aware of at least one fund, Norway’s sovereign wealth fund, a player that holds more than 1% of total Tesla stock, planning to vote against Musk’s payday, alongside Calpers, which has about 0.3% of non-Musk shares. 

On the other side, Baron Capital, Baillie Gifford, Ark Invest are voting for the deal bringing their total control to 1.6% of non-Musk shares. 

Along with many other names in the game, the tally seems to be about even; however, don’t count out the mighty retail investors who hold a combined 45% of non-Musk shares. 

With Musk’s cult-like following, over 90% of retail investors plan to approve the package, carrying over 40% of the votes that are needed for the vote to pass. Including the institutional investors that are pro-Musk, there isn’t much of a doubt that the vote will pass. 

This all relies on the fact that Musk hasn’t made a mistake in his calculations. Let’s say that he is spot-on with the numbers. The retail inventors, plus the institutional players mentioned above, make up around 42% of the total. To get to 50%, the number needed to get across the finish line, all eyes will be on Vanguard, State Street, and BlackRock, the three biggest institutional holders of most of the largest U.S.-based stocks through their ETFs. 

If Vanguard says no, 8% of non-Musk shares are out of the door, but a yes from State Street and BlackRock would be more than enough to seal the deal. 

The politics continue to rage on, but for now, stockholders and stockhaters alike must sit patiently and wait for the results to go through during Tesla’s annual shareholder meeting.