Norwegian opposition complicates Musk's path to $1 trillion pay deal

By Terje Solsvik and Ross Kerber

OSLO / BOSTON (Reuters) -Norway's sovereign wealth fund, Tesla's sixth-largest outside investor, said on Tuesday it would vote against ratifying a proposed pay deal for CEO Elon Musk potentially worth $1 trillion.

Musk's pay package is still seen as likely to win, given broad investor support in the past and the backing Tesla enjoys from its large retail shareholder base. Laws in Texas, where Tesla moved its headquarters last year, allow Musk to vote his own large stake, giving him 15.3% of voting power including restricted stock granted in August.

The opposition from stewardship-minded Norges Bank Investment Management was no surprise. But its direct criticism of the compensation and planned votes against two Tesla board directors add uncertainty to the outcome of a ballot set for Thursday, corporate governance experts said, and underscore how other European investors may also turn against the electric-vehicle maker.

CHAIR WARNS MUSK COULD QUIT

Tesla did not immediately respond to a request for comment.

Tesla's board is pushing for shareholders to approve the plan, with Chair Robyn Denholm warning that Musk could leave the $1.5 trillion market cap firm if the deal is rejected.

"European voters are much more likely to be swayed by where Norges goes, because of the general support of ESG (environmental, social and governance) principles and concerns into their investment philosophy," said Francis Byrd, a partner at consulting firm Alchemy Strategies Partners.

Byrd and several other consultants said they expect Tesla's recommendations to prevail at the meeting, since top investors have stuck with him so far. With a 1.12% stake in Tesla, the Norwegian firm known as NBIM is the only one of Tesla's top-10 outside investors to disclose its voting intentions ahead of the meeting so far.

They also noted how big U.S. investors are under pressure from the Trump administration to apply less public pressure on companies. That could make it harder to know if there is really much opposition until the day of the meeting, said Karla Bos, an independent governance consultant in Arizona.

"Less predictability is the watchword for 2025, and certainly for complicated votes like at Tesla," Bos said.

LOCKING MUSK'S HUGE PAY PACKAGE WON'T BE EASY

After NBIM, the next-largest investor to give its voting intentions is Baron Capital, which plans to back Musk's pay package and has 0.39% of Tesla's shares. Tesla's largest institutional investors, including BlackRock, Vanguard and State Street, have yet to disclose their intentions.

Among other large European investors in Tesla, representatives for Legal & General Investment Management of London and Amundi Asset Management of Paris declined to comment. Each has about 0.6% of Tesla shares.

Proxy advisers ISS and Glass Lewis have both urged shareholders to reject Musk's compensation plan, arguing it would be too large, deliver high payouts even if the CEO only meets some goals and could dilute the holdings of other investors. Both also opposed a re-ratification vote last year on a 2018 $56 billion package for Musk.

PRAISING VALUE CREATION, BUT CONCERNED WITH OVERALL SIZE

While this year's package could grant stock worth up to $1 trillion over 10 years, the cost of those shares at the time of the award will be deducted, making the value to Musk slightly lower, at up to $878 billion, according to a Reuters analysis.

"While we appreciate the significant value created under Mr. Musk's visionary role, we are concerned about the total size of the award, dilution, and lack of mitigation of key person risk - consistent with our views on executive compensation," NBIM said on its website.

NBIM also voted "no" on Musk's previous compensation plan, drawing a sharp response from the CEO, who turned down an invitation to a conference in Oslo. 

Tesla's sales in Norway fell 50% in October, along with declines in some other European markets, amid rising competition and backlash to Musk's political alliance with U.S. President Donald Trump.

NBIM on Tuesday also said it would vote against two of three Tesla directors who are up for reelection, declining to back board veterans Kathleen Wilson-Thompson and Ira Ehrenpreis while supporting Joe Gebbia, who joined in 2022.

Both Wilson-Thompson and Ehrenpreis are on Tesla's compensation committee. So is board chair Robyn Denholm, who is not up for election this year.

NBIM, which runs $2.1 trillion, also said it would vote against Tesla's proposed general stock compensation plan, which is intended for all employees and can also be used by the board to benefit Musk.

Tesla says its CEO would earn "nothing" unless the company's market value grows substantially and that the maximum award is only paid if the group reaches several milestones, most notably a market value of $8.5 trillion, a near six-fold increase.

(Reporting by Terje Solsvik in Oslo and by Ross Kerber in Boston; additional reporting by Nick Carey in London; Editing by Joe Bavier, Thomas Derpinghaus, Peter Henderson and Rod Nickel)