The Twitter Inc deal and its potential distraction from Tesla will play a big role in the trial in October, according to a lawyer for one shareholder.
Musk laid out a 10-year plan, which Tesla’s board rubber-stamped in 2018, without the celebrity CEO putting his heart and soul into the electric car maker, the lawsuit alleges.
“Look at most CEO contracts. The first line says ‘You will be a full-time CEO and devote most of your time to the business and affairs of the company.'” That’s standard,” said the person in charge of opposing pay agreements. said Greg Varallo of Bernstein Litowitz Berger & Grossmann.
Musk and Tesla did not respond to requests for comment. The defendants said in court filings that the plan, carefully crafted by independent directors and approved by shareholders, delivered unprecedented benefits for investors.
Tesla shares have fallen more than 20% since Musk disclosed on April 4 that he had a 9% stake in Twitter, partly due to concerns that he was distracted by the electric car maker’s supply chain issues.
In addition to Twitter, the multi-mission entrepreneur is already chairman of rocket company SpaceX, founder of tunnel venture capital firm The Boring Company, and owns brain chip startup Neuralink. His declared ambitions include colonizing Mars.
The 2018 Tesla compensation package grants stock options as the company achieves escalating financial goals, which the company says will motivate him to continue leading. The plan would be worth at least $56 billion if Tesla hits all of what has been described as a “stretch” target, although so will the value of the plan as Tesla’s stock price rises.
Currently, Musk’s shares vested under the plan are worth about $75 billion, according to Amit Batish of research firm Equilar. That’s roughly 35 times the combined value of the 100 top CEO compensation packages from 2021, he estimates.
The suit, filed in Delaware Chancery Court by shareholder Richard Tonetta, said the package was unnecessary because Musk owned 22 percent of Tesla at the time, giving him enough incentive for the company to acquire success.
Tornetta tried to cancel the program, including stock options that had already been granted.
Musk is using his Tesla stock as collateral for a loan to buy Twitter.
Musk and Tesla’s directors have argued in court filings that the compensation package does what it was meant to do — aligning Musk’s incentives with shareholders and creating value.
“Since implementation, Tesla’s value has grown from about $53 billion to more than $1 trillion, an increase of more than 1,800 percent,” the filing said. They noted that despite the substantial increase in value, Musk did not reach all of the milestones.
In March 2018, shareholders approved the package, which it described as “challenging” in securities filings.
Shareholders should have been informed before the vote that management knew some milestones might be achieved, the lawsuit said, in what it described as a materially misleading omission.
Tesla countered in court filings that the internal forecast was a “stretch” target.
“Nothing Elon approached or did was bold, super nervous and aggressive,” former Tesla CFO Deepak Ahuja testified in testimony in the case, according to a court filing. .”
Despite the staggering compensation, the trial could affect what directors think when negotiating the package and what the board tells shareholders before the vote.
“Nobody can see what’s going on with Twitter from a crystal ball,” said Minor Myers, a professor at the University of Connecticut School of Law. “But they could have negotiated Musk’s time at Tesla.”
The trial is scheduled to begin on October 24 in Wilmington, Delaware, and last five days.