The Elon Musk trial opens to decide the fate of his $56 billion Tesla salary

WILMINGTON, Del, Nov 14 (Reuters) – A trial opened on Monday over shareholder allegations that Tesla Chief Executive Elon Musk’s $56 billion pay package was rigged with simple performance targets and that investors were duped into approving it, with Musk set to take point of view. later this week.

A Tesla ( TSLA.O ) shareholder hopes to prove during the five-day trial that Musk used his dominance over the electric carmaker’s board to dictate the terms of the 2018 package, which did not even require him to work full-time at Tesla.

Musk, the world’s richest person, will testify on Wednesday, Greg Varallo, a lawyer for shareholder Richard Tornetta, told a court in Wilmington, Delaware, on Monday.

The trial began with Ira Ehrenpreis, a Tesla board member since 2007 and head of the committee that oversaw the pay package, describing the process for developing the record-breaking compensation deal.

“I wanted to make sure that Elon remained the head of Tesla for a long time,” Ehrenpreis testified.

The court was shown a short video clip of Musk’s deposition in the case. He described how Ehrenpreis called him to discuss creating a pay package to replace the 2012 pay agreement, which was nearing completion. Musk said he proposed Ehrenpreis “a larger amount but with much more difficult milestones” than the 2012 deal.

Tornetta has asked the court to overturn the pay package, which is six times larger than the top 200 CEO salaries combined in 2021, according to Amit Batish of research firm Equilar.

Musk and Tesla’s directors, who are also defendants, have denied the charges. They argued that the pay package did what it was intended to do – ensure that the founder succeeds in leading Tesla through a critical period, which helped drive the stock tenfold higher.

The Tesla shareholder lawsuit claims that the pay package should have required Musk to work full-time at Tesla.

The company’s shareholders have grown concerned that Musk is being distracted by Twitter, which he has warned may not survive an economic downturn.

The case will be decided by Chancellor Kathaleen McCormick of Delaware’s Court of Chancery. She oversaw the legal dispute between Twitter Inc and Musk that ended with him buying the social media platform for $44 billion last month.

Musk told a business conference on the sidelines of the G20 summit in Bali, Indonesia, on Monday that he had too much on his plate at the moment.

Legal experts said Musk is in a better legal position in the pay case than he was in Twitter’s lawsuit, which prevented him from walking away from the takeover.

Boards have a lot of leeway in setting executive compensation, according to legal experts.

However, directors face stricter legal tests if the pay package involves a controlling shareholder, and part of this litigation is likely to focus on whether that description fits Musk. While he only owned 21.9% of Tesla in 2018, plaintiffs are likely to cite what is seen as his domineering personality and ties to executives.

The contentious 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 hit 11 of the 12 targets as its value briefly rose to more than $1 trillion from $50 billion, according to court filings.

A decision will likely take 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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