Some of the world’s biggest money managers backed two unprecedented executive awards this year, emboldening other corporate boards to make colossal bets on their CEOs.
Funds run by BlackRock Inc., Fidelity and T. Rowe Price Group Inc. cast votes in favor of special grants for Tesla Inc. Chief Executive Officer Elon Musk and Axon Enterprise Inc.’s Rick Smith, regulatory filings show. Musk and Smith will each reap more than $1 billion from the grants if they meet moonshot financial targets over the next decade.
Closer scrutiny of executive compensation by investors and proxy advisers has prompted many boards to design middle-of-the-road pay programs to avoid drawing public scorn. But as investment giants with sizable stakes in most public U.S. firms show they’re receptive to unconventional ideas, more outlier pay plans may follow.
“Some boards are looking at these things and saying, ‘If they got away with it, we might, too,”’ said John Trentacoste, chief operating officer at Farient Advisors, which specializes in executive compensation.
Ambitious Award
Tesla, with a history of betting big on its iconic leader, outdid itself this year by proposing an award that showcased ambitions to make the carmaker one of the world’s biggest companies. The board proposed granting Musk stock options that would yield more than $50 billion if Tesla’s market value grows more than 10-fold and it significantly increases revenue or adjusted earnings before interest, taxes, depreciation and amortization. If the goals aren’t achieved, he’d get nothing.
Axon, which sells Tasers, body cameras and software services for law enforcement, replicated Musk’s award for its own CEO, promising Smith options that could yield about $1.3 billion if the firm met audacious growth targets.
The world’s two largest proxy advisory firms, Institutional Shareholder Services and Glass Lewis & Co., slammed the proposed awards. But shareholders of Axon and Tesla -- excluding Smith, Musk and his brother Kimbal, who recused themselves -- approved the pay packages by wide margins.
Among those were some funds at Fidelity, which manages about $2.5 trillion, and the $6.3 trillion giant BlackRock. Vanguard, which oversees $5.1 trillion, voted against Musk’s award while supporting Smith’s grant, filings show. Some funds at State Street Corp. rejected both pay proposals.
T. Rowe Price, which has about $1 trillion under management, told Bloomberg in March that Tesla’s plan was “well aligned with shareholders’ long-term interests.” Several of its funds supported that proposal but voted against Axon’s.