As if Elon Musk didn’t have enough on his plate, the world’s richest man is headed to court next week to defend his $56 billion Tesla pay package. Richard Tornetta, a Tesla shareholder who filed suit in 2019 to rescind Musk’s 2018 pay deal, claims the package — “the largest compensation grant in human history” — is unjustly paid to Musk without demanding he focus entirely on the carmaker.
The trial begins November 14, yet another drama Musk will have to juggle as he works to overhaul Twitter. Musk’s deal to buy the social media company went through at the end of October, and since then Musk has set to work laying off swathes of employees, getting sued for said layoffs, and generally scheming out loud on the platform about charging users $8 per month to get a blue tick next to their names.
The Twitter buy didn’t exactly help Musk’s case in the lawsuit over his pay package. Aside from Tesla, Musk already serves as CEO of SpaceX, the Boring Company, OpenAI and Neuralink. With Twitter, Musk will only lend credence to Tornetta’s claims that Musk is a “part-time executive” at Tesla.
Tornetta also claims the board set low bars on performance targets for Musk and that the grant was “demanded for the avowed purpose of colonizing Mars (the planet).”
Tesla has said Musk’s pay package delivered a 10-fold increase in value to shareholders.
The trial will be decided by Kathaleen McCormick on Delaware’s Court of Chancery. McCormick oversaw Twitter’s suit against Musk that ended in him agreeing to close his $44 billion deal, an acquisition which he financed in large part by selling his Tesla stock.
The grant ‘defied its goal of focusing Musk on Tesla’
Tornetta’s lawyers argue the 2018 package did not achieve its stated purpose of getting Musk to focus on Tesla, and no wonder — there were no provisions requiring Musk to devote time or attention to Tesla, nor were there provisions limiting Musk’s allocation of time or attention to non-Tesla endeavors.
“Indeed, Musk testified that since the Grant’s approval, he has spent a little more than half his time on Tesla matters and has dedicated substantial time and attention to various other endeavors,” the lawsuit reads.
Musk’s lawyers responded that his ambition is what makes him unique as a CEO, and that he does not punch a clock to determine time spent at the company.
The disputed pay package allows Musk to buy 1% of Tesla stock at a discount each time performance and financial targets are met. If they aren’t met, Musk gets nothing. Tesla hit 11 out of 12 targets, according to court papers.
“In any event, under the proposed plan, Musk would not earn any compensation at Tesla unless he drove tremendous growth, which could not be accomplished without significant time and attention from the CEO,” said Musk’s lawyers.
The suit against Musk also claims the package was not entirely fair because Musk controls the board.
“None of the committee members were independent of Musk,” wrote Tornetta’s lawyers.
For example, Kimbal Musk, Musk’s brother, sits on Tesla’s board — a pretty clear conflict of interest. Tornetta’s filing also points to former board member Antonio Gracias who the plaintiff describes as a close friend of Musk’s. Gracias, personally and through his private equity firm, has collectively invested over half a billion dollars in “essentially all of Musk’s entities,” according to the filing, including PayPal, Tesla, SpaceX, SolarCity, The Boring Company and Neuralink.
In addition, the filing calls out Ira Ehrenpreis and James Murdoch, who are both still on Tesla’s board, as being personal friends of Musk and investors in Musk’s entities. Gracias, Murdoch and Ehrenpreis are also listed among the defendants on the case.
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