Elon Musk’s trial begins to decide the fate of his  billion Tesla salary

Elon Musk’s trial begins to decide the fate of his $56 billion Tesla salary

WILMINGTON, Del, Nov 14 (Reuters) – A trial was opened on Monday over allegations by shareholders that Tesla Inc. Elon Musk’s $56 billion pay package was rigged with simple performance targets and that investors were misled into doing so to approve it, with Musk due to comment later this week.

A Tesla (TSLA.O) shareholder is hoping to prove during the five-day trial that Musk used his dominance on the electric vehicle maker’s board to dictate the terms of the 2018 package, which didn’t even require him to be full-time at Tesla worked.

Musk, the richest person in the world, will testify Wednesday, Greg Varallo, an attorney for shareholder Richard Tornetta, said Monday in a court in Wilmington, Delaware.

The process began with Ira Ehrenpreis, a Tesla board member since 2007, taking the stand to describe the company’s early years and Musk’s role.

“I was very impressed with his vision for this endeavor,” said Ehrenpreis.

According to Amit Batish of research firm Equilar, Tornetta has asked the court to overturn the salary package, which is six times higher than the salaries of the top 200 CEOs combined in 2021.

The directors of Musk and Tesla, who are also defendants, have denied the allegations. They argued that the pay package did what it intended — ensuring the entrepreneur successfully guided Tesla through a critical period, which helped the stock soar tenfold.

The case will be decided by Chancellor Kathaleen McCormick of the Delaware Court of Chancery. She led the legal battle between Twitter Inc (TWTR.MX) and Musk that ended with his $44 billion purchase of the social media platform last month.

The Tesla shareholder lawsuit argues that Musk’s pay package should have required him to work full-time at Tesla. The company’s shareholders are concerned that Musk will be distracted from Twitter, which he has warned may not survive an economic downturn.

Musk said on Monday at an economic conference on the sidelines of the G20 summit in Bali, Indonesia, that he was currently too busy.

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

According to legal experts, boards have a lot of leeway to set executive compensation.

However, directors must pass more stringent legal tests when the pay package includes a controlling shareholder, and part of that process will likely focus on whether Musk fits that description. While he owned just 21.9% of Tesla in 2018, plaintiffs are likely to cite his domineering personality and ties to directors.

A total of 19 witnesses are expected to testify, including directors and executives from 2018, compensation experts and consultants who helped draft the pay package.

The controversial package allows Musk to buy 1% of Tesla 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, according to court documents, as its value has briefly increased from $50 billion to more than $1 trillion.

A decision is expected to take about three months after the trial and could be appealed to the Delaware Supreme Court.

Reporting by Tom Hals in Wilmington, Delaware; Editing by David Gregorio and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with over two decades of international news experience, focusing on high-stakes litigation in everything from government policy to corporate contracting.

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