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The multi-day trial over billionaire Elon Musk’s Tesla compensation package kicked off at Delaware’s Court of Chancery on Monday morning.
The case’s first day at trial comes as the Tesla CEO has been busy making sweeping changes at Twitter since completing his $44 billion acquisition of the social media company in late October. Chancellor Kathaleen McCormick, the same judge who presided over the legal drama between Musk and Twitter, will hear both sides’ arguments in this compensation case.
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Tesla shareholder Richard Tornetta originally filed the suit several years ago seeking the invalidation and rescindment of the 10-year-pay package approved for Musk that year. In the case, Musk and six other individuals are named as defendants, while Tesla is named as a nominal defendant.
SpaceX founder and Tesla CEO Elon Musk looks on as he visits the construction site of Tesla’s gigafactory in Gruenheide, near Berlin May 17, 2021. (REUTERS/Michele Tantussi/File Photo / Reuters Photos)
The compensation package awarded him a 10-year grant of stock options that vest over 12 tranches dependent on the company meeting specific market capitalization and operational benchmarks, according to a proxy statement. For each tranche, the CEO receives the equivalent of about 1% of Tesla’s stock in options.
Greg Varallo, an attorney representing Tornetta, referred FOX Business to the team’s pretrial brief when reached for comment. FOX Business also reached out to Musk’s attorney regarding the suit but has not received a response by the time of publication.
In the plaintiff’s pretrial brief uploaded online by CNBC, Tornetta’s lawyers alleged Musk "conceived of and dictated [the] fundamental terms" of his pay package, which they described as the "largest compensation grant in human history" and excessive. They accused Musk of being a "part-time executive."
Ticker Security Last Change Change % TSLA TESLA INC. 195.97 +5.25 +2.75%
The pay package, they further argued, was "unnecessary to incentivize" Musk due to his equity stake in the electric car company and his current position at Tesla. The attorneys claimed it did not have provisions requiring him to "devote time or attention" to Tesla or "restricting or limiting Musk's allocation of time or attention to non-Tesla endeavors."
The plaintiff’s pretrial brief pointed to SpaceX, Open AI, Neuralink and the Boring Company. Musk serves as the CEO of SpaceX and co-founded the other three firms.
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Meanwhile, in the pretrial brief filed on Musk and the other defendants’ behalf, their attorneys pushed back on the notion it was unnecessary because, they claimed the "extent of Musk’s involvement in Tesla and the degree to which he would focus on Tesla was uncertain" at the time of the pay package. The board "reasonably concluded an audacious plan" was needed,
and shareholders have seen benefit from it, Musk’s lawyers alleged in the brief, which was uploaded online by PlainSite.
It did not "make sense to require" the CEO to allocate a specific amount of time to Tesla, the lawyers claimed, arguing the growth needed for him to receive compensation "could not be accomplished without significant time and attention," according to the defendants’ brief.
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The plan, they claimed, was "not a typical pay package intended to compensate the ordinary executive for overseeing the day-to-day operations of a mature company," because Musk "is not the typical CEO."
Tesla CEO Elon Musk (Reuters/Michele Tantussi/File Photo / Reuters Photos)
Tornetta’s team also claimed that some board members had personal and business conflicts of interest with Musk and that the "supine" board approved the package despite it allegedly lacking "traditional benchmarking," according to the brief. In the defendants’ pretrial filing, Musk’s attorneys argued that board members did not lack independence and that Musk was involved "as the counterparty," not a controlling shareholder.
The plaintiff’s attorneys argued the compensation plan, potentially worth up to over $50 billion, included some performance goals that were already part of Tesla’s financial forecast and "deemed probable of achievement." It was "secured with a materially misleading and omissive proxy statement" via a subsequent shareholder vote, Tornetta’s team further alleged.
Vehicles are parked outside the Tesla plant, in Fremont, California, on May 12, 2020. California sued Tesla Inc. on Wednesday, Feb. 9, 2022, over allegations of discrimination and harassment of Black employees at its San Francisco Bay Area factory. (AP Photo/Ben Margot, File / AP Newsroom) ELON MUSK'S NET WORTH DIPS BELOW $200B AS TESLA SHARES DROP
On the other hand, Musk’s attorneys claimed it disclosed the proper information about the formulation of the package and its goals. Tesla's "success was far from certain" at the time of the pay package, and its internal projections included "stretch targets" that were "very difficult yet attainable," they alleged.
Musk and others will reportedly provide testimony amid the trial over the Tesla compensation package.
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