‘Musk Is Not The Typical CEO’: Delaware Court Will Debate Elon Musk’s $56 Billion Tesla Compensation Package

‘Musk Is Not The Typical CEO’: Delaware Court Will Debate Elon Musk’s $56 Billion Tesla Compensation Package

Delaware Court

A lot of business and the attendant court cases flow through Delaware and it appears like the CEO of Tesla, “Chief Twit ” @ Twitter Elon Musk will soon spend some time in the state.



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Elon Musk at a Tesla event in 2015.

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. Now, the same court — and the same judge as the Twitter case, Kathaleen St. J. McCormick — will hear a different case related to Musk on November 14.

The lawsuit, filed by Tesla shareholder Richard Tornetta, 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.

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.

Related: Elon Musk’s Twitter Mass Layoffs Have Begun: ‘Has The Red Wedding Started?

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. “

Further, the lawsuit claimed that because Musk is friends with board members 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.

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.

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