Elon Says He Was ‘Completely Focused’ on Tesla As Court Debates His $56 Billion Compensation Package
A lot of business and the attendant court cases flow through Delaware. It looks like Elon Musk, CEO of Tesla, and “Chief Twit ” at Twitter spent some time there on Wednesday.
The world’s richest man acquired Twitter in late October after getting sued by the company in Delaware’s Chancery Court to make him go through with the deal. The same court, Kathaleen J. McCormick, is currently hearing another case regarding Musk.
Musk gave evidence on Wednesday regarding issues related to his executive compensation. He was asked about whether he was dedicated enough to Tesla to receive such a large amount of money.
“I was completely focused” on running Tesla, he said, per the Associated Press.
The lawsuit that started the court case was filed by Tesla shareholder Richard Tornetta, who claims that Musk’s board-approved compensation package from 2018 was excessive and breached the board’s duties to shareholders. Further, the suit claims Musk has too much on his plate to pull a compensation package that can go up to a value of over $50 billion, per TechCrunch. The outlet noted that it is “the largest compensation award in human history.”
Tesla and Twitter are both incorporated in Delaware, as are most very large businesses, due to the state’s tax benefits. Both cases will be heard in the Chancery Court of the state. It has “unique competence,” in the nitty-gritty of business law.
The trial will last about a week, and Judge McCormick will probably issue a ruling within a few months, according to the New York Times.
What is the Tesla lawsuit about?
Musk’s compensation (stock options, salaries, and bonuses) as CEO of Tesla (going back to 2009) was pegged to performance, as noted in the 2019 pre-trial opinion from Joseph R. Slights III, who was formerly vice chancellor of the Court of Chancery. (McCormick took over the case from Slights. )
After Tesla met the goals outlined in past compensation packages, the board created a new one for Musk and voted to approve it in January 2018.
The new package set a series of 12 performance goals, and corresponding groups of stocks, related to Tesla’s ability to increase its market capitalization, as well as revenue and earnings. Slights explained that Musk will be able to exercise options equal to 1% of Tesla’s total outstanding shares if he meets the goals. This means that Musk would receive the equivalent of 1% in shares. If he met all of those goals, Slights added, the maximum value of the total stock grant is $55.8 billion. The company has met 11 out of 12 so far, per TechCrunch.
Tornetta sued in 2019 saying that the package was too large and did not motivate Musk to focus on Tesla versus his other ventures. Musk is obviously a busy man. Musk is the listed CEO at Tesla, SpaceX and Twitter, at least for the interim.
Musk’s legal team has said that a one-of-a-kind, high-powered CEO deserves a high-impact compensation package.
“The plan designed and approved by the board was not a typical pay package intended to compensate the ordinary executive for overseeing the day-to-day operations of a mature company,” a Musk attorney, Evan Chesler, wrote in a filing, per Bloomberg Law. “That’s because Musk isn’t the typical CEO. “
On this topic: Greg Varallo, an attorney for the plantiffs asked Musk about his title as Tesla’s “Technoking.” “
“I believe comedy is legal,” Musk replied to the attorney. Varallo also wanted to know how Musk manages his companies, including SpaceX and Twitter.
The multi-billionaire CEO said that Varallo was not meant to be the leader of any of these companies and that he prefers to be an engineer, according to the AP.
Musk stated that he had once considered leaving Tesla. According to the Times, Antonio Gracias, a board member, later Wednesday stated that it was too difficult to find a replacement.
” We needed him all the while,” Gracias stated.
The lawsuit claimed that because Musk is friends with board members including Ira Ehrenpreis and James Murdoch, he generally exerts too much influence over it — despite recusing himself and his brother Kimbal from the compensation discussion — and the decision was not fair, according to TechCrunch.
Musk testified Wednesday that he was not intimate about the vacations he took with some board members.
” “It was email with a view,” Musk told the court. In his testimony, Gracias stated that he had vacationed with Musk.
The question of whether or not there was a conflict of interest is part of why the Slights initially denied Musk’s attempt to dismiss the suit. Typically, the court would leave executive compensation up to a company, and “this court’s earnest deference to board determinations relating to executive compensation does not jibe with our reflexive suspicion when a board transacts with a controlling stockholder,” Slights wrote in the 2019 opinion.
Whether Musk was operating as the controlling stakeholder (Musk has the largest stake in Tesla, but not all of it, so it will be up for debate again when McCormick hears the case), one expert told Bloomberg Law.
According to Jill Fisch, a business law professor at Penn State University, “this case has the potential for being very important from an executive compensation standpoint.”
” Although it won’t receive the same attention as the Musk-Twitter case, it is still important,” she stated.