WILMINGTON, Del., Nov 7 (Reuters) – As Elon Musk is engulfed in his redesign of Twitter, the entrepreneur is heading for a lawsuit to defend his record $56 billion Tesla Inc salary against allegations that he enriches him unjustly without requiring his full-time presence with the builder.
A Tesla shareholder TSLA.O is seeking to rescind Musk’s 2018 pay deal, saying the board set easy performance goals and Musk created the package to fund his dream of colonizing Mars.
Tesla countered that the package offered an extraordinary 10-fold increase in shareholder value.
The trial begins November 14 and will be decided by Kathaleen McCormick in the Delaware Court of Chancery. She oversaw Twitter’s lawsuit against Musk that ended last month when he agreed to complete his $44 billion deal for Twitter, an acquisition he largely funded with his Tesla stock.
“If Musk loses this salary package in a massive way, I think we can expect to see a lot of things that will be really hard to predict, like what’s going to happen in the future in terms of Tesla’s management and Twitter’s compensation. .for,” said Ann Lipton, a professor at Tulane Law School.
However, Lipton and other legal experts said the lawsuit brought by Tesla shareholder Richard Tornetta would be much tougher than Twitter’s case against Musk.
Musk founded and is CEO of SpaceX, one of the world’s most valuable private companies, and founded or co-founded Neuralink, which makes brain implants, tunneling company The Boring Co, and OpenAI, a research lab on artificial intelligence. Last week, he named himself CEO of Twitter.
Tornetta’s lawyers say the 2018 package fell short of its stated goal of focusing Musk on Tesla. They describe Musk as a “part-time CEO,” citing his testimony that in 2018 he worked Tuesday, Wednesday and Friday at the electric car maker and Monday and Thursday at rocket company SpaceX, according to his deposition.
According to the lawsuit, Tesla board chairwoman Robyn Denholm said Musk’s “minimal time” at Tesla was “growing increasingly problematic” in a 2018 email to Gabrielle Toledano, who was Tesla’s chief human resources officer at the time.
The company argued that the package was not about making Musk strike a clock and be on site at specific times each week, but about achieving “bold” goals, enriching Musk but also shareholders like Tornetta.
Disputed salary package allows Musk to buy 1% of Tesla stock at steep discount whenever performance growth and financial goals are met; otherwise Musk gets nothing. Tesla hit 11 of 12 goals as its value jumped from $50 billion to $650 billion thanks to ramping up production of the Model 3, court documents show.
The grants acquired from Musk are worth about $50 billion, according to Amit Batish of Equilar, an executive compensation research firm. Grants contribute to his $200 billion fortune, the largest in the world.
Musk’s stock grant package is greater than the combined salary of the 200 highest-paid CEOs last year — six times as much, according to Batish.
The lawsuit will likely focus on Tornetta’s claims that the package was developed and approved by directors beholden to Musk and promoted to shareholders without disclosing that early tranches were likely to be satisfied based on internal projections.
Tornetta’s filings are full of examples of a Musk-controlled board.
For example, Antonio Gracias, described by the plaintiff as a close friend of Musk and who served as lead independent director from 2010 to 2019, testified in his 2021 deposition that Musk could sell Tesla if he wanted to and that the company’s board administration could not stop it.
“Who worked for whom? Does Elon Musk work for the board or does the board work for Elon Musk,” said Minor Myers, a professor at the UConn School of Law.
Myers said if the salary package is canceled, the board could simply create a new one and do so with McCormick’s decision to guide them.
But circumstances have changed, complicating the process.
“He now owns Twitter. How do they account for that?” said Myers, who added that it will be difficult to figure out how to keep Musk from being distracted by other businesses.
“How much money do they have to 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
Our standards: The Thomson Reuters Trust Principles.