Tesla Motors

Tesla Motors: Proxy Score 100

Tesla Motors, Inc. (TSLA) designs, develops, manufactures, and sells electric vehicles, electric vehicle powertrain components, and stationary energy storage systems in the United States, China, Norway, and internationally. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/9/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 6/2/2015.  I voted with management 100% of the time and assigned Tesla Motors a proxy score of 100.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Tesla Motors 2015 proxy in order to enhance corporate governance and long-term value.

Tesla Motors: ISS Rating

From Yahoo! Finance: Tesla Motors, Inc.’s ISS Governance QuickScore as of May 1, 2015 is 6. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 5; Compensation: 8. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus… board and compensation.

Tesla Motors: Compensation

Tesla Motors Summary Compensation Table shows the highest paid named executive officer (NEO) was Chief Technology Officer Jeffrey B. Straubel, at about $17.1M in 2014.  I’m using Yahoo! Finance to determine market cap ($31.7B) and Wikipedia’s rule of thumb regarding classification.

Tesla Motors is a large-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Tesla Motors’ pay is above that number. To its credit, Tesla Motors shares out-performed the NASDAQ over the most recent one, two, and five year periods.

The GMIAnalyst report I reviewed gave Tesla Motors an overall grade of ‘F.’ According to the report:MSCI GMIAnalyst

  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
  • A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.

Tesla Motors: Board of Directors and Board Proposals

I’m not happy about the pay issues, classified board and other issues but I voted in favor of both directors. I am happy that after filing a proposal to move to a majority vote standard to elect directors, Tesla agreed and I withdrew my proposal. I view that as substantial progress.

Tesla Motors: Accounting

I voted to ratify Tesla Motors’ auditor, since less than 25 percent of total audit fees paid are attributable to standard audit work.

Shareholder Proposals at Tesla Motors

With regard to shareholder proposals, I voted against both. If Tesla stop using leather I don’t see how that is going to make any difference. Maybe I need to learn more about the issues but it seems to me the slaughter of cattle is driven by beef eaters, not users of leather.

As mentioned above, I withdrew my proposal to move to a majority standard to elect directors once the company agreed to do so.

CorpGov Recommendations for Tesla Motors – Votes Against Board Position in Bold (asdf replace table)

#PROPOSAL TEXTCorpGovCALVERT 
1.1Elect Director Antonio J. GraciasForFor
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.2Elect Director Kimbal MuskForFor
Calvert Social Index Fund: There is both gender and racial diversity on the board.
2Ratify PricewaterhouseCoopers LLP as AuditorsForFor
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
3Adopt Goals to Reduce Use of Animal-Sourced MaterialsAgainstAgainst
Calvert Social Index Fund: A vote AGAINST this resolution is warranted due to the overly prescriptive nature of the proposal.
4Become First Cruelty-Free Premium BrandAgainstAgainst
Calvert Social Index Fund: A vote AGAINST this resolution is warranted due to the overly prescriptive nature of the proposal.

SharkRepellentGovernance Issues at Tesla Motors

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Classified board with staggered terms.
  • No action can be taken without a meeting by written consent.
  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (66.67%) to amend certain charter and all bylaw provisions.

Tesla Motors Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Stockholders may present proper proposals for inclusion in Tesla’s proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to Tesla’s Corporate Secretary at Tesla Motors, Inc., 3500 Deer Creek Road, Palo Alto, CA 94304 in a timely manner. In order to be included in the proxy statement for the 2016 annual meeting of stockholders, stockholder proposals must be received by Tesla’s Corporate Secretary no later than December 24, 2015, and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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