Elon Musk’s Tesla Compensation Trial in Delaware Court Kicks Off

WILMINGTON, Del. – A lawsuit over Elon Musk’s multibillion-dollar pay package at Tesla Inc.

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Monday morning began in Delaware’s business law courts.

One Tesla shareholder, Richard Tornetta, is seeking to void Mr. Musk’s 2018 compensation grant, worth about $52 billion at current share prices. The plaintiff alleges that the board failed to disclose important information about the package to the shareholders at that time.

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Ira Ehrenpreis, who participated on the point for Tesla’s board in developing the plan, testified that the salary package showed “extraordinarily ambitious and difficult” odds and was meant to keep Mr. Musk, a serial entrepreneur, involved in the carmaker.

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A key question in the case is whether Mr. Musk, who at the time owned about 22% of Tesla and had close ties to many directors, controlled the board’s consideration of his pay package. Mr. Ehrenpreis said Mr. Musk did not dictate the terms of the grant, which vets Tesla based on its valuation and achievement of various milestones.

RELATED VIDEO: Elon Musk, CEO of SpaceX and Tesla, made a virtual appearance at the B20 business conference in Indonesia on Monday and said he has a lot of work to do after taking to Twitter. The billionaire also said that the social media platform needs to publish more videos. Photo: B20 Indonesia 2022/YouTube

The plaintiff alleges that Mr. Musk controlled the process, that the board misled shareholders to secure their approval for the stock grant, and that the deal was unnecessary to motivate Mr. Musk.

Cross-examination of Mr. Ehrenpreis by plaintiff’s counsel zeroed in on how similar the compensation plan was to Musk’s demand.

Mr. Musk, who does not accept a salary from Tesla, has secured all but one of the 12 options available under the grant, based on Tesla achieving various goals.

The company’s market capitalization has more than 10-fold since shareholders signed off on the CEO’s pay package, helping Tesla become the world’s most valuable carmaker and Mr. Musk the richest man.

Chancellor Kathleen McCormick, the judge in the five-day, non-jury trial, is not expected to issue a verdict for months after the trial ends. The judge also presided over Twitter Inc.’s lawsuit seeking to force Mr. Musk to end his $44 billion deal for the social media company. The transaction closed late last month, before the case went to trial.

Mr Musk is expected to take the stand on Wednesday.

Former General Counsel Todd Maron and former Chief Financial Officer Deepak Ahuja will also testify. Robin Denholm, who heads Tesla’s board, is scheduled to testify remotely Tuesday morning. Board member James Murdoch is also expected to take the stand.

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The trial comes at a busy time for Mr. Musk, who has been making his mark on Twitter, laying off about 50% of his staff and implementing various product changes. He also runs the rocket company SpaceX.

“I have a lot of work on my plate, that’s for sure,” Mr. Musk said in a virtual appearance at a conference in Indonesia on Monday.

Shareholders were fully informed when Mr. Musk’s 2018 pay package was signed off by lawyers representing current and former board members.

“In a critical juncture for the company, the plan motivated Musk to focus his extraordinary talents on Tesla at a time when Musk’s future with Tesla was uncertain, especially given his other interests and opportunities,” they said in a court filing.

Employee stock options have been at the center of several controversies at Tesla, where the question of who will benefit from the company’s stratospheric growth has caused tension, the Wall Street Journal recently reported. A wider concern for Mr. Musk is that some employees were earning more than they thought their contributions to Tesla deserved.

Write to Rebecca Elliott at [email protected]

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