The battle over Elon Musk's pay package is a showdown between his army of supporters and institutional investors

• Tesla is preparing for a showdown between some big investment firms and individual shareholders on June 13.
• Several institutional investors have indicated they plan to vote against Elon Musk's pay plan.

Tesla is setting the stage for a battle between some vocal institutional investors and some of Elon Musk's biggest supporters.

The two sides appear ready to face off at Tesla's annual shareholder meeting on June 13. Over the past few weeks, several investment firms have urged shareholders to vote against the proposed pay package for Musk, which was valued at $55 billion when it was struck down by a Delaware judge earlier this year.

The executive pay plan, which was first approved in 2018, is centered on a series of goalposts around Tesla's financial growth. The plan involves a 10-year grant of 12 tranches of stock options that are vested when Tesla hits specific targets. When the company hits each milestone, Musk gets stock equal to 1% of outstanding shares at the time of the grant. Tesla said it hit all of the 12 targets as of 2023.

The Delaware judge that voided the compensation plan in January argued that Musk had undue influence over the package and its approval because of his close ties to several board members, resulting in an "unfair price."

Meanwhile, Tesla has argued that the pay package is both fair and necessary to maintain Musk's focus on the car company. In a series of advertisements and messages to shareholders ahead of the June shareholder vote, Tesla has continued to argue that the plan is "critical to the future success of Tesla" and a matter of properly compensating Musk for his work over the past six years.

And some of Musk's most devout fans, many of which count themselves as investors, have begun to spread the same message. Tesla has even shared screenshots of some of its fans' tweets about voting in some of its filings with the Securities and Exchange Commission, including a video from @TeslaBoomerMama that includes step-by-step instructions on how to vote in the annual meeting.

In some ways, Tesla has made retail investors like @TeslaBoomerMama an influencer of sorts, according to a report from The Information. Over the past few weeks, Tesla retail investors have been raising a rallying cry on social media, and even targeting investors like Leo Koguan, one of Tesla's largest individual shareholders, who has expressed his intentions to vote against the proposal.

Tesla's retail investors hold a notable level of power at the company. Individual investors hold a large portion of Tesla stock, accounting for about 44% of Tesla shares, per S&P Global Market Intelligence data quoted by Reuters. That's the highest percentage out of the 10 largest companies in the S&P 500, according to Reuters. So while institutions like CalPERS — which holds about 9.5 million Tesla shares, according to Bloomberg — have said they plan to vote against the proposal, they might be faced with a large number of individual investors canceling out their votes.

Adam Jonas, head of Morgan Stanley's auto and space research, said in an analyst note from Friday that, based on a survey of 109 respondents, Morgan Stanley expects Musk's pay package to be met with 57% approval.

Ultimately, the issue comes down to whether individual investors will show out for the vote. Anat Alon-Beck, a corporate law expert out of Case Western Reserve University, told Business Insider that it's uncommon for individual investors to put in the effort to cast a vote.

"I'd say 90% of retail investors throw out those proxy cards," Alon-Beck said. "I'd be shocked if a large number of them actually vote and mail it back."

For its part, Tesla has been working overtime to distribute material on how to vote, providing QR codes and online options in addition to mail-in votes. On Tuesday, the company even kicked off a raffle, offering shareholders who could provide proof that they'd voted the chance for a special tour of the Texas gigafactory alongside Musk.

The Tesla CEO has also promoted the proposal and criticized institutional investors who have spoken out against the pay plan. He even threatened to take his work with AI outside of Tesla if he is unable to secure additional voting shares.

A spokesperson for Tesla did not immediately respond to a request for comment.

Ahead of the June 13 shareholder meeting, shareholders will be asked to vote on several other proposals in addition to Musk's pay package. The company is also asking investors to vote on whether to move Tesla's state of incorporation from Delaware to Texas and a separate proposal to reelect Tesla board members Kimbal Musk and Murdoch.

For Musk, whose net worth is largely tied to his Tesla shares, the stakes couldn't be higher.

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