December 4, 2022

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Elon Musk’s trial opens to decide the fate of his $56 billion Tesla payment from Reuters

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©Reuters. FILE PHOTO: Tesla CEO Elon Musk speaks about new Autopilot features during a Tesla event in Palo Alto, California October 14, 2015. REUTERS/Beck Diefenbach

By Tom Hals

WILMINGTON, Del (Reuters) – Tesla (NASDAQ:) CEO Elon Musk is expected to take a stand this week to defend his $56 billion pay package against shareholder claims it was rigged with simple performance targets and Investors were tricked into approving it.

A Tesla shareholder hopes 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 work full-time at Tesla.

Shareholder Richard Tornetta has asked the court in Wilmington, Delaware, to overturn the pay package, which Equilar’s Amit Batish says is six times 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 boost the stock 10-fold.

Musk, the richest person in the world, could testify as early as Tuesday, according to a court filing.

The case will be decided by Chancellor Kathaleen McCormick (NYSE:) of the Delaware Court of Chancery. She led the legal battle between Twitter Inc (NYSE:) 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.

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

Testimony Monday is expected to begin with Ira Ehrenpreis, Tesla director since 2007. A total of 19 witnesses are scheduled, including directors and executives dating back to 2018, compensation experts and consultants who helped craft 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.

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