Norway’s Sovereign Wealth Fund to Vote Against Tesla’s $1 Trillion Pay Proposal for Elon Musk

Norges Bank Investment Management (NBIM), the entity responsible for managing Norway’s Government Pension Fund Global (GPFG), has announced its opposition to Tesla’s proposed $1 trillion pay package for CEO Elon Musk. The move comes ahead of Tesla’s upcoming annual shareholder meeting and underscores the fund’s concerns regarding the size and structure of Musk’s compensation.

A Vote Against Musk’s “CEO Performance Award”

In a statement released on Tuesday, NBIM clarified that it would vote against Tesla’s “CEO Performance Award,” a compensation proposal that could see Musk receive up to $1 trillion in stock options over the course of several years. The award is based on the assumption that Tesla continues to hit specific performance milestones, including an ambitious target of growing its market value to $1 trillion.

While the sovereign wealth fund acknowledged the value Musk has created for Tesla and the broader electric vehicle industry, it expressed reservations over the sheer scale of the award.

“We appreciate the significant value created under Mr. Musk’s visionary role,” the statement read, “but we are concerned about the total size of the award.” The fund also highlighted its ongoing commitment to advocating for more responsible and transparent executive compensation practices, noting that the proposed award failed to mitigate what it referred to as “key person risk”—the potential danger of a company becoming overly reliant on a single individual, in this case, Musk.

The fund’s opposition to the pay package is consistent with its broader views on executive compensation, which it has previously raised concerns about in the context of other high-profile CEOs.

A History of Opposition to Musk’s Pay Proposals

This is not the first time the Norwegian sovereign wealth fund has opposed Musk’s compensation. In 2024, the fund voted against another pay package proposal for Musk, which was valued at approximately $56 billion. The fund cited similar concerns at the time, arguing that the total value of the award was excessive, especially given the structure of performance triggers and the potential dilution of existing shareholders.

At that time, the fund’s management explained that it was “consistent with its opposition to the same award in 2018,” which was also rejected due to concerns over compensation size, performance criteria, and the lack of safeguards for mitigating key person risk.

Tesla’s Stock Performance

The timing of the fund’s statement comes amidst a slight downturn in Tesla’s stock price. On Tuesday morning, Tesla shares dropped by around 2.61%, settling at $456.18 in premarket trading. While the drop in share price can be attributed to various market factors, the news of the fund’s stance on the compensation proposal may also have contributed to the market reaction.

Tesla’s compensation plans for Musk have long been a subject of debate, with some investors raising concerns about the fairness and transparency of stock-based compensation packages that offer enormous potential rewards for the CEO.

The Norwegian Oil Fund’s Stake in Tesla

The Government Pension Fund Global, often referred to as the “Oil Fund,” is one of the largest sovereign wealth funds in the world, with investments spanning numerous industries and geographies. The fund holds a 1.14% stake in Tesla, which, as of June 2024, was valued at approximately $11.7 billion. This makes the fund one of Tesla’s largest institutional investors.

Despite holding a significant share in the company, the Oil Fund has consistently advocated for more responsible and sustainable business practices, including advocating for reforms in executive compensation, corporate governance, and environmental responsibility.

Looking Ahead

The vote on Tesla’s compensation proposal will take place during the company’s annual shareholder meeting, where other institutional investors will also weigh in on the issue. It remains to be seen whether other major shareholders will follow the lead of the Norwegian sovereign wealth fund or if Tesla will push forward with the proposal, given the company’s strong performance under Musk’s leadership.

For now, the Norwegian Oil Fund’s decision to vote against the proposal signals that even some of the world’s largest and most influential investors are questioning the fairness and sustainability of Tesla’s executive pay structure, which could prompt broader discussions on corporate governance in the tech and automotive sectors.

Conclusion

Norges Bank Investment Management’s decision to vote against Tesla’s $1 trillion pay proposal for Elon Musk reflects ongoing concerns about executive compensation, the potential risks associated with an over-reliance on one individual, and the need for more transparency in performance-based rewards. With Tesla’s market value soaring and Musk’s leadership continuing to drive the company’s growth, this vote could have significant implications for how major institutional investors approach executive pay in the future. As the shareholder meeting draws closer, the outcome of this vote will likely set the tone for future discussions around corporate governance in the tech and automotive industries.