The National Pension Service (NPS) of South Korea has announced its support for Elon Musk’s ambitious $1 trillion pay plan, which is under consideration by Tesla shareholders. The NPS, one of the world’s largest pension funds with assets exceeding $910 billion, disclosed its decision through an announcement made by its investment arm, NPS Investment Management. This move comes as global investors remain divided ahead of a crucial shareholder vote scheduled for Thursday.
As of September 2023, the NPS holds approximately 0.18% of Tesla’s shares. While the fund did not elaborate on its reasons for backing Musk’s compensation package, its support contrasts sharply with several international investors, including Norway’s sovereign wealth fund, which has openly opposed the plan. Global proxy advisory firms such as ISS and Glass Lewis have also recommended that shareholders reject the proposal, labeling it as “excessive” and misaligned with shareholder interests.
Details of the Pay Plan
The proposed pay package could grant Musk up to 424 million additional shares in Tesla, potentially increasing his stake from 15% to around 25% if all performance targets are met. The plan is structured into 12 tranches of stock, each contingent upon achieving specific operational and market capitalization milestones. The initial market capitalization target is set at $2 trillion, with incremental increases leading up to $8.5 trillion by 2035. This target is significantly higher than Tesla’s current valuation of approximately $1.5 trillion.
To unlock the full value of the package, Tesla must also meet aggressive operational goals, including increasing the production of electric vehicles and growing subscriptions for its self-driving software. Financially, the company needs to expand its trailing 12-month adjusted EBITDA from around $16 billion last year to as much as $400 billion.
Investor Perspectives
Supporters of Musk’s plan argue that his leadership is crucial for Tesla’s innovation and long-term value creation. Baron Capital, which owns about 0.4% of Tesla, emphasized that the company’s achievements are closely tied to Musk’s vision, urging shareholders to back the pay plan.
Conversely, critics warn that the compensation deal concentrates power excessively and sets unattainable financial benchmarks. Norges Bank Investment Management has already voted against Musk’s remuneration package, citing concerns about the plan’s size and its potential to dilute shareholder value.
In its filing, the NPS indicated that it will oppose a proposal that would allow Tesla to invest in Musk’s AI venture, xAI, suggesting that it is uncertain whether such investment would enhance shareholder value. Additionally, the fund will oppose other proposals, including the introduction of sustainability metrics into executive compensation, as it believes these do not address specific shareholder concerns. The NPS will also vote against the appointment of directors Ira Ehrenpreis and Kathleen Wilson-Thompson.
Tesla remains a popular stock among South Korean retail investors, reflecting the significant interest in the company’s performance and governance. As the shareholder vote approaches, the outcome of Musk’s pay package will likely have lasting implications for both Tesla and its investors.
