The Tesla Pay Package Is Under Scrutiny In Delaware

(CTN News) – Tesla shareholders asked a Delaware judge on Tuesday to invalidate CEO Elon Musk’s 2018 compensation package, which may be worth more than $55 billion.

The shareholders’ lawyers argue that the compensation package should be voided because Musk dictated it and it was negotiated in an unfair manner with directors who were not independent.

Additionally, they claim shareholders approved it based on misleading and incomplete proxy statements.

Corporate directors are often deferred to in decision-making by Delaware courts when there is no showing of wrongdoing.

Due to Musk’s control, attorney Greg Varallo argued the Tesla defendants should be required to prove the compensation plan was “entirely fair” to shareholders.

Defendants claimed the pay plan had been fairly negotiated by an independent compensation committee. It contained performance milestones that were ridiculed by some Wall Street investors.

In addition, it was approved by a shareholder vote that was not even required under Delaware law. According to them, Musk did not control the company because he owned less than a third.

During November’s trial, Musk denied dictating compensation terms or attending meetings where the board, its compensation committee, or a working group discussed the plan.

In addition, Musk denied that his friendship with certain Tesla board members meant that they would do his bidding.

Musk was to earn billions if Tesla reached certain market capitalization and operational milestones. Whenever Tesla met a market cap milestone and an operational milestone simultaneously, Musk, who owned about 22% of at the time the plan was approved, would receive stock equal to 1% of outstanding shares.

It is likely that his interest in the company would grow to about 28% if its market capitalization increased by $600 billion.

A post-trial brief filed by the plaintiff’s attorneys alleges Tesla reached all twelve market cap milestones and eleven operational milestones, giving Musk nearly $28B on his stock options. Holding periods for stock options are five years.

Varallo told McCormick that Musk should give back some, if not all, of the stock options he has been granted.

According to defense lawyer Evan Chesler, Musk’s compensation package was a “high-risk, high-reward” deal, which benefitted not only Tesla shareholders, but also Musk, who saw Tesla’s value rise from $53 billion to over $600 billion, after briefly reaching $1 trillion last year.

Moreover, Chesler said Tesla wanted shareholders to know that Musk’s compensation figure was “a heart-stopping number.”

Chesler noted that, while some Wall Street investors bet against Tesla, the company’s leadership in electric vehicle manufacturing has transformed the American automotive industry.

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