WILMINGTON, Del, Nov 14 (Reuters) – A lawsuit was filed Monday over shareholders’ claims that Tesla CEO Elon Musk’s $56 billion pay package was set with easy performance targets and investors were tricked into confirming it, while Musk was scheduled to take the stand. . later this week.
and Tesla (TSLA.O) The shareholder hopes to prove during the five-day trial that Musk used his dominance over the electric vehicle maker’s board to dictate the terms of the 2018 package, and that it doesn’t even require him to work full-time at Tesla.
Musk, the richest person in the world, will testify on Wednesday, Greg Varallo, attorney for shareholder Richard Tornetta, told a court in Wilmington, Delaware, on Monday.
The hearing began with Ira Ehrenpreis, who has been a Tesla board member since 2007 and chair of the committee overseeing the payout package, describing the process of developing the record-breaking compensation deal.
“I wanted to make sure that Elon remains the leader of Tesla for a longer period of time,” Ehrenpreis said.
A short video clip of Musk’s testimony in the case was shown to the court. He described how Ehrenpreis called him to discuss creating a pay package to replace the 2012 salary agreement, which was near completion. Musk said he offered Ehrenpreis “a larger amount but much more difficult milestones” from the 2012 deal.
Tornetta sued According to Amit Batish of research firm Equilar, canceling the pay package in 2021, which is six times greater than the total 200 CEO salaries.
At the same time, Musk and Tesla’s executives denied the allegations. They argued that the payout package did what it was intended to do – enabling the entrepreneur to successfully steer Tesla through a critical period, which helped boost the stock tenfold.
The Tesla shareholder lawsuit argues that the pay package should require Musk to work full-time at Tesla.
The company’s shareholders were concerned He cautioned that Musk was distracted by Twitter. may not survive an economic downturn.
The case will be decided by Chancellor Kathaleen McCormick of the Delaware Chancery Court. He oversaw the legal dispute between Twitter Inc and Musk that ended last month when he bought the social media platform for $44 billion.
Musk told a business conference Monday on the sidelines of the G20 summit in Bali, Indonesia: too much for your salary at the moment.
Legal experts say Musk is a better legal position more in the payment case than in Twitter’s case, which kept it from walking away from the takeover.
According to legal experts, boards have wide latitude to determine executive compensation.
However, if the payout package includes a controlling shareholder, executives have to pass stricter legal testing, and part of this trial will likely focus on whether that definition fits Musk. Despite only owning 21.9% of Tesla in 2018, plaintiffs are likely to cite what is seen as his domineering personality and ties to executives.
The controversial package allows Musk to purchase 1% of Tesla’s shares at a deep discount each time the increased performance and financial targets are met. Otherwise, Musk won’t get anything.
Tesla hit 11 of the 12 targets value briefly ballooned according to court documents, from $50 billion to more than $1 trillion.
A decision will be made about three months after the trial and can be appealed to the Delaware Supreme Court.
reporting by Tom Hals in Wilmington, Delaware; Additional reporting by Hyunjoo Jin in San Francisco; Editing by Jonathan Oatis, Noeleen Walder and Bill Berkrot
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