Legal fight over Elon Musk’s $56bn Tesla pay deal heads to court


Elon Musk will seek to prove that he’s deserving of a multibillion-dollar pay package from Tesla, in a court case brought by shareholders who accuse the electrical carmaker of getting enriched its co-founder and chief executive at their expense.

The world’s wealthiest man is ready to testify this week in a trial that begins on Monday, through which he, Tesla and members of its board are alleged to have breached their duties by awarding Musk share options value a maximum of virtually $56bn.

The proceedings in a Delaware court come just weeks after the 51-year-old took control of Twitter, adding the social media company to an ever-expanding list of companies of which he’s no less than nominally in charge, including Tesla, SpaceX, Neuralink and The Boring Company.

Lawyers for the Tesla investors who brought the lawsuit argued Musk’s growing portfolio meant he’s stretched too thinly to be considered a full-time chief executive of the automobile company, let alone one worthy of an award that they claim “dwarfs the pay package of each other public company CEO”. The lawsuit was filed before Musk’s $44bn deal for Twitter.

Musk can even face the claim that his pay package, described by plaintiffs because the “largest . . . in human history”, was awarded in 2018 by a “supine” board composed largely of his friends, and that an independent set of directors would have vetoed such a scheme. Lawyers representing the board members didn’t reply to a request for comment.

Distinguished proxy advisers ISS and Glass Lewis condemned the package on the time, with the latter concluding that “any relative comparison of the grant’s size can be akin to stacking nickels against dollars”.

Glass Lewis also noted that Musk already owned greater than a fifth of Tesla and had adequate incentives to grow the corporate.

Ultimately, the package — termed the “CEO performance award” by Tesla — was voted through by shareholders, awarding Musk 12 tranches of the corporate’s stock, each representing 1 per cent of Tesla’s share capital.

Eleven of the 12 tranches vested when the carmaker’s market capitalisation, revenues and profitability reached certain levels.

Lawyers for the billionaire argue that his equity pay plan “was designed to maximise stockholder value by incentivising Musk to focus his efforts on transforming Tesla”. at a time when the rapidly expanding manufacturer’s future remained uncertain.

They said Musk never took a money salary at Tesla, and that the equity pay plan served its purpose. The corporate’s market value has ballooned greater than 1,200 per cent to almost $700bn since 2018, even though it has recently fallen to about $600bn.

“There aren’t any comparable executives,” lawyers for Musk argued in a pre-trial transient, adding that there have been also “no comparable corporations”. 

The case will nonetheless be closely watched by businesses across the US, which fear a win for Tesla shareholders will prompt a wave of comparable challenges in Delaware, where a lot of the country’s public corporations are incorporated.

Nonetheless, Rupert Russell, a partner at law firm Shartsis Friese, said he didn’t see the Tesla case “as being precedent-setting for the remainder of corporate America” due to the dimensions of the pay plan and Musk’s unique position.

He added that Musk “is unquestionably taking a risk by not settling the case” especially after he “essentially gave in on the prior cases being heard by the identical judge”.

This week’s trial will probably be held in front of Kathaleen McCormick, who oversaw the case through which Twitter accused Musk of unlawfully pulling out of a $44bn deal to purchase the tech group. Musk ultimately agreed to follow through with the acquisition last month, days before a court deadline to shut the deal or set a November trial date.

Musk has sold almost $20bn of his Tesla stock since launching his takeover bid for Twitter, which is saddled with billions of dollars in debt and which the billionaire said was now losing roughly $4mn a day. Tesla’s share price has fallen greater than 50 per cent up to now this yr.

While the share options awarded to Musk under his pay plan contain no clawback provisions, the plaintiffs want them to be cancelled, which might increase the worth of the remaining Tesla equity.

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