Elon Musk's $56bn Tesla compensation trial to begin next week
As Elon Musk expends his time and energy on reshaping Twitter, things are getting unsettled at Tesla. A lawsuit against the billionaire's $56 billion pay package in the automaker is going to trial on November 14. The suit was filed by Richard Tornetta, a Tesla shareholder, in 2019. Kathleen McCormick of the Delaware Court of Chancery will oversee the trial.
Why does this story matter?
- No one can say that Musk's life is one without any drama. First, Twitter, and now, Tesla.
- The Twitter acquisition may turn out to be a curse for Musk in this case. He's already the CEO of Tesla, SpaceX, The Boring Company, OpenAI, and Neuralink.
- Adding Twitter to that equation gives credibility to the argument that he is not spending enough time on Tesla.
Musk's pay package is tied to Tesla's success
In 2018, the Tesla board approved a new pay deal for Musk worth $56 billion. The package dwarfed every other executive compensation deal in the world. Musk's payout is completely tied to Tesla's success. This includes the carmaker attaining a valuation of $650 billion. He has 11 other targets as well. The award is paid out in 12 tranches.
Tesla board's request to dismiss the suit wasn't considered
Although most of Tesla's largest shareholders approved Musk's new pay deal, there were many who were against it, including corporate governance groups and smaller shareholders. Tornetta, an investor in the company, filed a suit against the package in the Delaware Court of Chancery. Tesla's board tried to get it dismissed but the then-Vice Chancellor Joseph Slights ruled against the board's request.
The suit claims that the package unfairly enriches Musk
In his pleadings, Tornetta claims that Tesla's board breached its fiduciary duty by approving the package and that it unjustly enriches the CEO. The suit also says that the package doesn't demand Musk's undivided attention to Tesla and has set easily achievable performance targets. It also alleges that the control Musk wielded over the board makes the package unfair.
Tornetta claims that Tesla's board wasn't independent of Musk
Tornetta's lawyers have invited attention to the fact that Musk himself has admitted to not dedicating substantial time to Tesla affairs. They also said that none of the committee members were independent of Musk. The board had Kimbal Musk, Musk's brother, Antonio Gracias, whom Tornetta describes as a close friend of Musk, Ira Ehrenpreis, and James Murdoch, who are also Musk's friends.
Musk's ambition makes him a unique CEO: Lawyers
Musk's lawyers have taken the stance that it is his ambition that sets him apart from others. They said that the pay package doesn't come into play if Musk doesn't lead Tesla to tremendous growth, "which could not be accomplished without significant time and attention." They will also argue that the proposal got 73% of the votes, excluding votes by Musk and his brother.
