WILmington, Dell, Nov 14 (Reuters) – A trial has begun on Monday over shareholders’ allegations that Tesla CEO Elon Musk’s $56 billion pay package was rigged with easy performance targets and that investors were duped into agreeing to them, and Musk is set to take Platform. later this week.
Tesla (TSLA.O) The contributor hopes to prove during the five-day trial that Musk used his dominance on the electric car manufacturer’s board to dictate the terms of the 2018 package, which didn’t even require him to work at Tesla full time.
Musk, the world’s richest person, will testify on Wednesday, Greg Faralo, attorney for shareholder Richard Torneta, told a court in Wilmington, Delaware, on Monday.
The experiment began with Ira Ehrenpreis, a Tesla board member since 2007, taking a stand to describe the company’s early years and Musk’s role.
“I was very moved by his vision of this endeavor,” Ehrenpress said.
Torneta has asked the court to scrap the pay package, which is six times more than the combined salaries of 200 CEOs in 2021, according to Amit Patish of research firm Equilar.
The directors of Musk and Tesla, who are also accused, denied the allegations. They argued that the pay package did what it was intended to do – ensure the entrepreneur successfully steered Tesla through a critical period, helping push the stock tenfold higher.
The case will be adjudicated by Chancellor Kathleen McCormick of Delaware Court of Appeal. She oversaw the legal dispute between Twitter Inc (TWTR.MX) Musk, who ended up buying the social media platform for $44 billion last month.
The Tesla shareholder lawsuit argues that the wage package should require Musk to work full time at Tesla. The company’s shareholders have become concerned that Musk is being distracted by Twitter, which has warned that it may not survive the economic slowdown.
Musk told a business conference on the sidelines of the G20 summit in Bali, Indonesia, on Monday that he had a lot of work to do at the moment.
Legal experts said Musk was in a better legal position in the wages case than he was in the Twitter lawsuit, which prevented him from walking away from the acquisition.
Boards have broad latitude to determine executive compensation, according to legal experts.
However, board members must undergo rigorous legal testing if a pay package includes a controlling shareholder, and part of that experience is likely to focus on whether that description fits Musk. While he owned just 21.9% of Tesla in 2018, plaintiffs are likely to cite what is seen as his authoritarian personality and his relationships with managers.
In all, 19 witnesses are due to testify, including directors and CEOs from 2018, compensation experts, and consultants who helped craft the pay package.
The contested package allows Musk to buy 1% of Tesla’s stock at a huge discount each time the upsurge in performance and financial goals are met. Otherwise, Musk gets nothing.
Tesla hit 11 out of 12 goals with its value briefly ballooning to more than $1 trillion from $50 billion, according to court papers.
The decision will likely take about three months after the trial and can be appealed to the Delaware Supreme Court.
Additional reporting by Tom Hales in Wilmington, Delaware. Editing by David Gregorio and Jonathan Otis
Our criteria: Thomson Reuters Trust Principles.
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