Musk is due to appear in a Delaware judge on Nov. 14 over investor Richard Tornetta’s claim.
The decision of the directors of Tesla Inc. to approve a $55 billion compensation package for Chief Executive Officer Elon Musk in 2018 was marred by conflicts of interest and inappropriate disclosures about the performance benchmarks he would be held to, a disgruntled investor argued in a lawsuit. .
Musk, the world’s richest person and Tesla’s largest shareholder, is due to appear in a Delaware judge on Nov. 14 over investor Richard Tornetta’s claim, who alleges the billionaire came up with the deal with a windfall by having it through a “backed advice”.
Musk dictated the “framework and financial terms, which remained fundamentally unchanged” throughout the board’s approval process, Tornetta’s attorneys said in a Delaware Chancery Court letter released Wednesday.
Legal experts say the case will highlight the role of courts in regulating executive pay and shed light on Musk’s itinerant management of Tesla and other companies he owns. Last month, the entrepreneur completed his $44 billion acquisition of social media platform Twitter Inc.
The case is being heard in Delaware because, like Twitter, Tesla is incorporated in the state, home to more than half of U.S. public companies and more than 60% of Fortune 500 companies. The Chancery Judges are business law experts who handle cases without a jury, often on a fast-track basis.
Delaware Chancery Court Judge Kathaleen St. J. McCormick — who oversaw Musk’s Twitter disputes — will review testimony about his Tesla pay package and decide whether it’s a waste of company assets.
In their remand, Musk’s lawyers denied Tornetta’s claims that the compensation package was excessive. They said he was a unique executive and earned a custom salary plan based on Tesla’s astronomical appreciation in value over the past decade.
Tornetta’s lawyers rejected Tesla executives’ claim that they loaded Musk with Tesla stock options to ensure he would remain at the head of the electric car maker and focus on its success. They noted that Musk already splits management time between Tesla, Space X, his space company and his other startups. Tesla’s compensation plan thus rewards “part-time work,” according to the filing.
The board’s compensation committee, headed by Musk’s friend and confidant Ira Ehrenpreis, was so obligated to the billionaire that its members could not begin to make an independent assessment of a reasonable compensation plan, Tornetta said.
And their disclosures to investors about the reward plan’s goals violated Delaware law, according to the briefing.
In proxy statements, the board said the compensation package included a set of “comprehensive targets selected to be very difficult to achieve” but did not disclose that three of those milestones had likely already been reached by the date of the shareholder vote approval of the plan. said Tornetta’s lawyers.
Tornetta filed his derivative lawsuit on behalf of the company against Musk and other Tesla directors in 2018. That means all the money recovered goes back to the electric car manufacturer and not to Tornetta. The investor is asking McCormick to return Musk stock options granted under the compensation plan.