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The controversy over the varied compensation packages awarded to Elon Musk by the Tesla board since 2018 took a brand new flip this week. A shareholder group referred to as SOC Funding Group has requested NASDAQ — not the Securities and Trade Fee — to invalidate the most recent proposed compensation package deal on the grounds that it violates the buying and selling platform’s guidelines designed to guard shareholders of publicly traded firms.
The SOC Group, previously often called the CtW Funding Group, works with pension funds sponsored by a coalition of unions representing over 2 million members. A lot of these funds are Tesla traders. Fortune experiences that in a letter despatched August 19, 2025, to Erik Wittman, deputy basic counsel and head of enforcement at NASDAQ, the group expressed “severe issues” about Musk’s new compensation package deal.
Particularly, SOC mentioned it was involved that Tesla’s board discovered a option to get round NASDAQ itemizing guidelines when awarding Musk the “2025 CEO Interim Award” the board accredited earlier this month. It claims that plan ought to have required a shareholder vote as stipulated by NASDAQ guidelines, because it materially amends Musk’s compensation plan.
The Tesla board accredited Musk’s compensation package deal beneath the corporate’s 2019 Fairness Incentive Plan, which was designed to exchange the $56 billion choices package deal from 2018, often called the “2018 CEO Efficiency Award.” That older award has been overturned on two separate events by the Delaware Chancery Courtroom. The choose in Delaware, after an exhaustive assessment, dominated the Tesla board members lacked independence and have been little greater than surrogates managed by Musk. Stooges, in different phrases, and extremely paid stooges at that. Her resolution has been appealed to the Delaware Supreme Courtroom, the place a call is pending.
A Hedge Towards The Delaware Courtroom Determination
Fortune reporter Shawn Tully famous in a narrative printed on August 6 that the brand new package deal will solely apply if the Delaware Supreme Courtroom upholds the choice by the Chancery Courtroom choose. He additionally famous that, not like with the unique $56 billion award, the newer $29 billion award contains restrictions which are designed to guard shareholders — at the very least in idea.
The shares vest on the second anniversary of the grant — which can occur in early August, 2027 — however provided that Musk serves as CEO or chief of product improvement or chief of operations throughout the complete two-year interval. He can not promote any of these vested shares till 5 years later — which is to say August 3, 2030.
In accordance with Fortune reporter Amanda Gerut, regardless of these restrictions, the package deal doesn’t comprise particular efficiency targets that Musk wants to attain. Brian Dunn, director of the Institute for Compensation Research at Cornell College, informed Fortune that business insiders generally check with such restrictions as “fog the mirror grants.”
What does that imply? Merely this: “When you’re round and have sufficient breath left in you to fog the mirror, you get them.” Whereas the restrictions give the looks of defending shareholders, they don’t require the recipients to truly do something that provides to shareholder worth. In different phrases, it’s a charade.
A Shareholder Avoidance Gadget
That’s not what the SOC Funding Group letter to NASDAQ is about, nevertheless. As a substitute, the group argues the Tesla board intentionally averted getting shareholder approval for the package deal, which is opposite to NASDAQ itemizing insurance policies that every one firms whose shares are listed on the alternate are required to honor.
Tejal Patel, government director of the SOC Funding Group, informed Fortune in an interview that the “actual difficulty is the truth that the unique plan … was fairly clear within the disclosures that the corporate didn’t intend to incorporate Elon Musk in that plan.” Acknowledging that such points are often raised with the Securities and Trade Fee, she added: “Admittedly, that is the primary time I’ve flagged one thing like this to NASDAQ [and that’s] as a result of it was a really particular itemizing normal.” Her understanding of the NASDAQ normal is that “that is precisely what it was designed to keep away from.”
The SOC Funding Group contends that when Tesla shareholders accredited the 2019 Fairness Incentive Plan, firm disclosures explicitly excluded Musk from eligibility, and said Musk’s compensation could be tied to the 2018 award completely. “When shareholders voted on the 2019 Plan it’s possible that, based mostly on the accessible disclosures and analysis, they didn’t consider they have been voting on an fairness plan that might cowl compensation to Mr. Musk,” the SOC letter notes, “exactly due to the ‘actually extraordinary’ nature of the 2018 CEO Efficiency Award.”
The SOC letter additionally notes that Tesla’s 2019 proxy assertion repeated a number of occasions that the 2019 plan was not meant to cowl awards to Musk. Moreover, the letter mentions that main proxy advisory corporations indicated the 2018 CEO Efficiency Award was “meant to be the only technique of compensation for Mr. Musk, counting on the Firm’s disclosures.” Due to this fact, the 2025 CEO Interim Award “seems to develop the category of individuals beneath the 2019 Plan in method that might be sufficiently materials to require a separate shareholder vote.”
The letter additionally warns that Tesla’s board has indicated additional interim awards may comply with, doubtlessly bypassing shareholder votes whereas the Delaware case is pending. It urges NASDAQ to behave to revive “the rightful stability between shareholder and administration’s pursuits,” whereas guaranteeing shareholders have the flexibility to completely perceive how executives are being compensated.
Director Independence
SOC has “actual issues over director independence,” Patel informed Fortune. “That is form of the result of getting a board that isn’t unbiased.” She mentioned her group is worried with points over a scarcity of director independence and the fixed redefinition of Musk’s tasks inside the firm — significantly as Musk delves into a number of actions unrelated to managing Tesla. She additionally instructed that the outsized new compensation package deal, beneath which Musk would get the identical monetary rewards whether or not he was CEO or serving in a lesser function, is “fairly remarkable.”
This isn’t the primary time SOC Funding Group has been concerned with Tesla. It has repeatedly opposed massive pay packages for Musk. It opposed the unique 2018 plan that awarded Musk $56 billion — a place the choose in Delaware later agreed with. It has additionally inspired shareholders to vote in opposition to associated awards it believed didn’t adjust to correct company governance requirements.
It additionally opposed the re-election of Kimbal Musk and James Murdoch as administrators, claiming they weren’t actually unbiased of Musk’s affect and due to this fact weren’t performing in the perfect pursuits of shareholders. It has joined with different traders to promote shareholder resolutions that decision for Tesla to undertake complete labor rights insurance policies, together with non-interference with union organizing campaigns and compliance with world labor requirements each within the US and in different international locations.
Public Curiosity Vs. Non-public Curiosity
The issue with being a public company is that it provides shareholders the proper to demand that their pursuits are pretty included within the selections that have an effect on the worth of their shares. Not being extremely expert company legal professionals, we aren’t able to evaluate whether or not the issues raised by SOC Funding Group are cheap, however for a few years there have been issues that the Tesla board was a captive of Musk’s affect and extra involved with doing his bidding than operating a publicly owned company.
It has not too long ago come to gentle that the compensation paid to Tesla board members is as a lot as 100 occasions greater than the norm for company administrators basically. That reality alone provides to the looks that they’re extra involved with feathering their very own nest than defending the pursuits of all shareholders. Whether or not the letter to NASDAQ has any vital penalties stays to be seen.
Hat tip to Dan Allard
Featured picture: “Elon Musk overlooking the stays of F9R” by jurvetson (CC BY 2.0 license).
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