Justice has decided to take up the case because Musk owns around 22% of the shares of Tesla and “could have an undue impact” on the company’s board of directors.
Elon Musk, already busy upsetting Twitter, is expected to take the stand on Wednesday, November 16, in a lawsuit attacking the more than $50 billion compensation plan granted to him by Tesla’s board of directors. He must testify before the Delaware court, where the trial against the social network was to take place before he decides to honor his commitment and pay 44 billion dollars to buy Twitter at the end of October.
The case he is called in on Wednesday follows a complaint from a shareholder in the electric car maker, which is suing Tesla, its boss and some members of its board of directors for allowing in 2018 “the largest compensation plan ever awarded to an executive”. The latter plans to pay Elon Musk $56 billion in Tesla stock based on the achievement of several ten-year goals. After having fulfilled almost all of them, the leader has pocketed 52.4 billion dollars in stock options in four and a half years. Enough to fuel his fortune and help him rise to the rank of the richest man in the world.
According to plaintiff Richard Tornetta, Elon Musk did not need these financial incentives to achieve these goals. But he dictated his terms to directors who, given their relationship with the iconic entrepreneur or their personal interests, were not independent enough to oppose it. And this when he did not even work full time for Tesla insofar as he is also at the head of the space company SpaceX and the start-ups Neuralink and The Boring Company. Richard Tornetta requests the cancellation of the plan.
“Extraordinarily ambitious and difficult” objectives
Lawyers representing the defendants argue that Elon Musk’s compensation plan is linked to the performance of the company, including on the stock market, and that it worked perfectly as the value of Tesla increased by more than ten since its adoption. The trial, without a jury, began Monday with the testimony of Ira Ehrenpreis, head of compensation on the board of directors of Tesla. He assured that the objectives set were “extraordinarily ambitious and difficult” and pointed out that the board wanted to motivate Elon Musk to focus on Tesla when the company was still struggling to ramp up. The current president of this body, Robyn Denholm, spoke on Tuesday.
The judge in charge of the case is Kathaleen McCormick, who also took care of the file opposing Elon Musk to Twitter. She should make her decision in a few months.
He is “very unusual” for complaints about executive compensation to reach the trial stage because they are often settled or dismissed by judges who generally believe that they are strategic decisions, notes Jill Fisch, professor of business law at the University of Pennsylvania. But in this case, the court decided that the fact that Elon Musk owns about 22% of Tesla shares and is the CEO “could have an undue impact” on the board of directors and on the other shareholders,” she said.
The lawsuit, she says, is being watched by big business because it could influence “the procedures to be followed to set executive compensation”. It also comes at a time when Elon Musk has been under severe pressure since his acquisition of Twitter at the end of October, between the departure of more than half of the employees, the flight of advertisers, warnings from various authorities and the confused launch of new products. During an intervention on Monday, he admitted, in a joking tone, that his workload had “recently increased a lot”.
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