WILMINGTON, DELAWARE (AP) – Attorneys for a Tesla shareholder urged a Delaware judge on Tuesday to invalidate a 2018 compensation package awarded by the company’s board of directors to Chief Executive Officer Elon Musk (AP, pic below) that is potentially worth more than USD55 billion.
The shareholder’s lawyers argued that the compensation package should be voided because it was dictated by Musk and the product of sham negotiations with directors who were not independent of him.
They also said it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.
Delaware courts often defer to the “business judgement” of corporate directors in decision-making absent a showing of wrongdoing.
But attorney Greg Varallo argued that the Tesla defendants should be required to show that the compensation plan was “entirely fair” to stockholders because Musk was a controlling shareholder.
Defence attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones that were so lofty they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law.
They also argued that Musk was not a controlling shareholder because he owned less than one-third of the company at the time.
Tuesday’s arguments followed a November trial at which Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it. Musk also downplayed the notion that his friendships with certain Tesla board members, including sometimes vacationing together, mean that they were likely to do his bidding.
The plan called for Musk to reap billions if Tesla hit certain market capitalisation and operational milestones.
For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22 per cent of Tesla when the plan was approved, would get stock equal to one per cent of outstanding shares at the time of the grant.
His interest in the company would grow to about 28 per cent if the company’s market capitalisation grew by USD600 billion.
Tesla has achieved all 12 market capitalisation milestones and 11 operational milestones, providing Musk nearly USD28 billion in stock option gains, according to a post-trial brief filed by plaintiff’s attorneys. The stock option grants are subject to a five-year holding period, however.
Varallo told Chancellor Kathaleen St Jude McCormick that Musk should be force to give back some, if not all, of the stock option grants he has earned.
Defence attorney Evan Chesler said the compensation package was a “high-risk, high-reward” deal that benefitted not just Musk, but Tesla shareholders who have seen the value of the company based in Austin, Texas, climb from USD53 billion to more than USD600 billion, having briefly hit USD1 trillion last year.
Chesler also said Tesla made sure that the USD55 billion compensation figure was included in the proxy statement because the company wanted shareholders to know that “this was a heart-stopping number that Musk could earn”. “Nobody’s laughing now,” added Chesler, noting that, while some Wall Street investors bet against Tesla, the company’s leadership in electric-vehicle manufacturing has transformed the United States automobile industry.
Following Tuesday’s hearing, McCormick ordered yet another round of briefing on various legal issues.
