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As Musk focuses on Twitter, his $56 billion Tesla salary goes to trial




WILMINGTON, Del., Nov 7 (Reuters) – As Elon Musk is consumed by his Twitter overhaul, the entrepreneur is heading to court to defend his record $56 billion Tesla Inc pay package against claims it is unjustly enriching him without to require his full-time presence at the automaker.

A Tesla ( TSLA.O ) shareholder is seeking to overturn Musk̵[ads1]7;s 2018 pay deal, arguing that the board set simple performance targets and that Musk created the package to fund his dream of colonizing Mars.

Tesla has countered that the package gave an extraordinary 10-fold increase in value to shareholders.

The trial begins on November 14 and will be decided by Kathaleen McCormick in Delaware’s Court of Chancery. She oversaw Twitter’s lawsuit against Musk that ended last month when he agreed to end his $44 billion deal for Twitter, an acquisition he largely financed with Tesla stock.

“If Musk loses this pay package in a massive way, I think we can expect to see a lot of things that will be very difficult to predict, like what happens going forward in terms of how Tesla is run and how Twitter is paid for,” said Ann Lipton, professor at Tulane Law School.

However, Lipton and other legal experts said the lawsuit by Tesla shareholder Richard Tornetta is going to be much more difficult than Twitter’s case against Musk.

Musk founded and is the CEO of SpaceX, one of the world’s most valuable private companies, and founded or co-founded Neuralink, which makes brain implants, the tunneling venture The Boring Co and OpenAI, an artificial intelligence research laboratory. Last week, he appointed himself Twitter CEO.

‘PART-TIME Managing Director’

Tornetta’s lawyers argue that the 2018 package failed in its stated purpose of focusing Musk on Tesla. They portray 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 the rocket company SpaceX, according to his statement.

According to the lawsuit, Tesla Chairman Robyn Denholm said the “minimal amount of time” Musk was at Tesla was “becoming more and more problematic” in a 2018 email to Gabrielle Toledano, who was Tesla’s Chief People Officer at the time.

The company has argued that the package was not about requiring Musk to punch a clock and be on site specific hours each week, but to hit “bold” targets, enriching Musk but also shareholders like Tornetta.

The contentious pay package allows Musk to buy 1% of Tesla’s stock at a deep discount each time escalating performance and financial goals are met; otherwise, Musk gets nothing. Tesla has met 11 of the 12 targets as its value rose to $650 billion from $50 billion on the back of increased Model 3 production, according to court filings.

Musk’s vested endowments are worth about $50 billion, according to Amit Batish at Equilar, an executive compensation research firm. The grants add to his $200 billion fortune, the world’s largest.

Musk’s package of stock grants is larger than the combined pay of the 200 highest-paid CEOs last year — six times over, according to Batish.

The lawsuit is likely to focus on Tornetta’s claims that the package was developed and approved by board members dependent on Musk and promoted to shareholders without disclosing that the first tranches were likely to be met based on internal projections.

STEERING CONTROL

Tornetta’s archives are full of examples of a board controlled by Musk.

For example, Antonio Gracias, described by the plaintiff as a close friend of Musk and who was the lead independent director from 2010-19, testified in his 2021 affidavit that Musk could sell Tesla if he wanted to and the board could not stop him.

“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 pay package is rescinded, the board could simply create a new one and do so with McCormick’s ruling to guide them.

But circumstances have changed, complicating the process.

“He now owns Twitter. How will they bring that?” said Myers, who added that figuring out how to keep Musk from being distracted by other ventures will be a challenge.

“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: Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-profile legal battles over everything from government policy to corporate deals.



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