By Tom Hals
WILMINGTON, Del. (Reuters) – A Delaware judge ruled on Friday that the board of Tesla Inc
Tesla estimates the 2018 compensation package to be worth $ 2.6 billion when it received shareholder approval in March 2018, although stock analysts at the time said it could be worth up to $ 70 billion if the company – which has not yet had an annual surplus – grew rapidly.
The compensation price does not include any salary or cash bonus for the Silicon Valley billionaire Musk, but sets rewards based on Tesla's market capitalization, which will rise to $ 650 billion over the next decade.
On Friday, Vice Chancellor Joseph Slights of the Delaware Court of Chancery ruled against Tesla's request to dismiss the lawsuit from shareholder Richard Tornetta in an initial phase of his lawsuit because of the way the board approved the suit.
As a result, the board must now defend itself against allegations that it violated its trust obligation upon approval of the package, and that the package unjustly enriches Tesla's CEO. The ruling opens up further discoveries in the decision-making process.
Tornetta had asked for the salary package to be withdrawn and the Tesla board overhauled to better protect investors.
The ruling revolved around Tesla's compensation committee, which the company admitted was not independent of Musk, in Slight's opinion. Had the package been negotiated by truly independent board members and approved by a majority of shareholders not affiliated with Musk, Slights said he would have rejected the lawsuit.
"However, Plaintiff has well promised that the Board's level review was not separated from Musk's influence," Slights wrote.
Musk's compensation package passed shareholder approval with approximately 73 percent of the votes cast, except for Musk and his brother Kimbal. The voting results indicated that some, but not all, large investors were willing to support a large payout with the basic led company, which has struggled to produce its electric vehicles efficiently and profitably.
At that time, the proxy advisory firm Institutional Shareholder Services recommended voting against the compensation, noting that if achieved Musk's price would exceed anything previously provided to top executives in the United States.
During the allotment, which involves stock options vesting in 12 tranches, Tesla's market value must increase to $ 100 billion for the first mortgage to vest and increase in another $ 50 billion increment for rest. The package does not require Tesla to make profitability calculations.
Musk does not have a majority of Tesla's shares, but in a separate case, Slights determined that Musk's swing over Tesla made him a controller from a legal standpoint. As a supervisor, the board is subject to a higher standard for legal oversight of decisions it makes about its relationship with Musk.
The judge rejected Tornetta's assertion that the package constituted a waste of the company's assets.
(Additional reporting by Alexandria Sage in San Francisco; Editing by Will Dunham)