By Tom Hals and Hyunjoo Jin
WILMINGTON, Del. (Reuters) – As Elon Musk is engulfed in his overhaul of Twitter, the entrepreneur is headed to trial to defend his record $56 billion Tesla Inc pay package against claims it unjustly enriches him without requiring his full-time presence on the carmaker.
A Tesla shareholder is looking for to rescind Musk’s 2018 pay deal, claiming the board set easy performance targets and that Musk created the package to fund his dream of colonizing Mars.
Tesla has countered that the package delivered a unprecedented 10-fold increase in value to shareholders.
The trial begins Nov. 14 and will probably be decided by Kathaleen McCormick on Delaware’s Court of Chancery. She oversaw Twitter’s lawsuit against Musk that ended last month when he agreed to shut his $44-billion deal for Twitter, an acquisition which he financed largely together with his Tesla stock.
“If Musk loses this pay package in some massive way, I feel we will expect to see plenty of things which are going to be really hard to predict, like what happens going forward by way of how Tesla is run and the way Twitter is paid for,” said Ann Lipton, a professor at Tulane Law School.
Nonetheless, Lipton and other legal experts said the lawsuit by Tesla shareholder Richard Tornetta goes to be far more difficult than Twitter’s case against Musk.
Musk founded and is CEO of SpaceX, considered one of the world’s most dear private firms, and founded or co-founded Neuralink, which makes brain implants, tunneling enterprise The Boring Co, and OpenAI, a synthetic intelligence research lab. Last week, he appointed himself Twitter CEO.
Tornetta’s lawyers argue the 2018 package failed its stated purpose of focusing Musk on Tesla. They portray Musk as a “part-time CEO,” citing his testimony that in 2018 he worked Tuesday, Wednesday and Friday at the electrical carmaker and Monday and Thursday at rocket company SpaceX, in response to his deposition.
In keeping with the lawsuit, Tesla’s board chair Robyn Denholm said the “minimal time” Musk was at Tesla was “becoming an increasing number of problematic” in a 2018 email to Gabrielle Toledano, who on the time was the Tesla Chief People Officer.
The corporate has argued the package was not about requiring Musk to punch a clock and be on site specific hours each week, but to hit “audacious” targets, enriching Musk but additionally shareholders like Tornetta.
The disputed pay package allows Musk to purchase 1% of Tesla’s stock at a deep discount every time escalating performance and financial targets are met; otherwise Musk gets nothing. Tesla has hit 11 of the 12 targets as its value ballooned to $650 billion from $50 billion on the back of ramped up Model 3 production, in response to court papers.
Musk’s vested grants are value around $50 billion, in response to Amit Batish at Equilar, an executive pay research firm. The grants contribute to his $200-billion fortune, the world’s largest.
Musk’s package of stock grants is larger than the combined pay of the 200 highest-paid CEOs last yr – six times over, in response to Batish.
The trial is more likely to concentrate on Tornetta’s claims the package was developed and approved by directors beholden to Musk and promoted to shareholders without revealing the primary tranches were probable of being met based on internal projections.
Tornetta’s filings are filled with examples of a board controlled by Musk.
For instance, Antonio Gracias, described by the plaintiff as a detailed friend of Musk and who was lead independent director from 2010-19, testified in his 2021 deposition that Musk could sell Tesla if he wanted and the board couldn’t stop him.
“Who worked for who? Does Elon Musk work for the board or does the board work for Elon Musk,” said Minor Myers, a professor at UConn School of Law.
Myers said if the pay package is rescinded, the board could simply create a latest one and achieve this with McCormick’s ruling to guide them.
But circumstances have modified, complicating the method.
“He now owns Twitter. How do they need to factor that in?” said Myers, who added that it should be a challenge to find out how one can keep Musk from being distracted by other ventures.
“How much money do they should put in front of this guy to get his attention,” he said.
(Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Hyun Joo Jin in San Francisco; Editing by Noeleen Walder and Nick Zieminski)
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