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- Here are all the things Tesla investors will be voting on at the company's annual meeting this week
Here are all the things Tesla investors will be voting on at the company's annual meeting this week
Proposal 1: Re-electing two directors
Proposal 2: A new equity incentive plan
Tesla is asking shareholders for approval to issue 12.5 million new shares as part of a new equity incentive plan. This will allow the company to continue issuing stock as compensation for employees and executives.
ISS and Glass-Lewis are worried the new issuances will dilute shareholders' total equity by about 6.8%, and are therefore urging investors to reject the proposal.
"Stock purchase plans enable employees to become shareholders, which gives them a stake in the company's growth," ISS said in its report.
"However, purchase plans are beneficial only when they are well-balanced and in the best interests of all shareholders. From a shareholder's perspective, plans should have reasonable purchase discounts and offering periods, and they should limit the number of shares allocated. In this case, the plan's purchase price is at least 85 percent of fair market value and the offering period is not longer than 27 months. Also, the number of shares allocated to the plan is not more than 10 percent of outstanding shares. As such, support for this proposal is warranted."
Proposal 3: Approving the company's employee stock purchase plan
Tesla allows employees to purchase stock at a significant discount, and the Board has already approved a continuance of this plan. Now it needs shareholder approval.
"Tesla strongly promotes a culture of stock ownership in order to incentivize employees to contribute to our successes, from which they reap the benefit of increases in our stock's value," the company said in its proxy statement. "For this reason, in addition to establishing minimum stock ownership and holding periods for our directors and named executive officers, we offer equity awards to all of our employees."
ISS and Glass-Lewis also support the proposal as employee stock plans "align the interests of employees and shareholders and encourage a sense of ownership at companies," Glass Lewis writes.
Proposals 4 and 8: A simple majority vote
Two separate proposals deal with eliminating a supermajority vote. One is supported by Tesla's board, and one is not.
James McRitchie, an activist investor who runs the site CorpGov.net has submitted proposal 8, which urges Tesla to adopt a simple majority and eliminate the current supermajority voting requirements, which he says could enhance shareholder rights.
"Large funds, such as T. Rowe Price, BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management," the proposal reads. "Currently a 1 % special interest minority of shares can frustrate the will of shareholders casting 66% of shares in favor. In other words a 1 % special interest minority could have the power to prevent shareholders from improving our corporate governance.
ISS supports the measure, but Tesla and Glass-Lewis are urging investors to vote against it.
"The Board has determined that this proposal would not serve the best interests of Tesla or our stockholders, because we have separately included a proposal (Proposal Four) for our stockholders to directly approve amendments to each of our Certificate of Incorporation and our Bylaws to eliminate any voting requirements therein that require greater than a majority vote of our stockholders," the board said in its opposing statement. "Unlike this proposal, which is advisory and non-binding, Proposal Four would result in our implementing such amendments upon approval, and the Board urges our stockholders to vote for Proposal Four."
Proposal four, which the board supports, also eliminates the supermajority vote requirement for amending the company's governing documents.
Proposal 5: Reducing director terms from three to two years
Tesla is asking investors for permission to shorten the term lengths that directors serve on its board from three years currently to two years. The Board is urging investors to vote for the measure, something both proxy advisors also support.
"While this proposal would not result in a fully declassified board, the reduction from three to two board classes would represent an incremental increase to overall board accountability," ISS writes. "As such, support for this proposal is warranted."
Proposal 6: Ratifying Tesla's outside auditor
Tesla needs shareholder approval to continue its use of Pricewaterhouse Coopers as the company's auditor and outside public accounting firm. Both proxy advisors also support the motion, as is typical of most companies' annual meeting.
Proposal 7: Establishing a public policy committee
Jing Zhao, who owns 12 shares of Tesla, has proposed a public policy committee to "oversee the Company's policies including human rights, environment, domestic governmental regulations, foreign affairs and international relations affecting the Company's business."
Zhao argues that "many companies, such as the dead Yahoo and the troubled facebook [sic], failed without a public policy committee. The Company's current Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are not adequate to deal with the new age of global competition, confusion, conflicts and confrontation. The Company needs not only an independent Chairman (or Chairwoman), but also a public policy committee.."
Tesla's board does not support the proposal, arguing that it already has the necessary powers to guard against public policy issues.
"Ultimately, the Board is responsible for overseeing the major risks that we face, and its members represent a unique collection of diverse backgrounds and experience in a variety of industries that allows them to react to new risks and business conditions," it said in an opposing statement.
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