UPDATE 1-Big investor, adviser split on pay for Tesla's Musk

(Adds shareholder views)

March 21 (Reuters) - A top investor in Tesla Inc and a major proxy adviser have offered opposing views on whether to support Chief Executive Elon Musk's compensation arrangement at a special meeting of the electric car maker to be held Wednesday.

The Silicon Valley billionaire's proposed compensation award, valued at $2.6 billion, involves no salary or cash bonus but sets rewards based on Tesla's market value rising to as much as $650 billion over the next 10 years.

The company needs majority approval from shareholders for the proposal to go through. The vote is seen as a test of whether big investors are prepared to support such a large payout at the founder-led company.

Musk's pay plan "is well aligned with shareholders' long-term interests," a spokesman for T. Rowe Price Group, Tesla's fourth-largest investor with about 6 percent of its shares, told Reuters on Wednesday, without saying which way the Baltimore fund firm would vote.

Earlier this month, proxy advisory firm Institutional Shareholder Services recommended Tesla stockholders reject the package, saying the "unprecedented" award was too rich.

Other top investors did not immediately comment on Wednesday. A smaller investor, the California State Teachers' Retirement System (CalSTRS), said it will oppose the award. CalSTRS is one of the nation's largest public pension plans but only the 59th largest investor in the car maker, with a 0.13 percent stake.

"Given the size of the award, we believe the potential dilution to shareholders is just too great. In addition, we have concerns about the lack of focus on profitability for the company, and the one profitability metric that is used excludes the cost of stock-based compensation," CalSTRS' Director of Corporate Governance, Anne Sheehan, said in a statement.

Musk could own as much as $55.8 billion in Tesla stock and more than a quarter of the electric car company in the next decade if he hits all targets of the new plan.

Under the proposed award, which involves stock options that vest in 12 tranches, Tesla's market value must increase to $100 billion for the first tranche to vest and rise in additional $50 billion increments for the remainder.

Tesla was valued at about $52.46 billion at Tuesday's closing price, according to Thomson Reuters data. Its shares have fallen nearly 12 percent since the pay plan for Musk was announced. (Reporting by Ross Kerber in Boston and Rishika Chatterjee in Bengaluru Editing by Sunil Nair and Bill Rigby)