As if Elon Musk didn’t have enough on his plate, the world’s richest man will go to court next week to defend his $56 billion Tesla pay package. Richard Tornetta, a Tesla shareholder who filed suit in 2019 to rescind Musk’s 2018 pay deal, alleges that the package — “the largest compensation award in human history” — was unfairly paid to Musk without demanding that he commit himself fully to the car manufacturer concentrates.
The trial kicks off on Nov. 14, another drama Musk will have to juggle as he works on the Twitter overhaul. Musk’s deal to buy the social media company went through at the end of October, and since then Musk has gone to work laying off a large number of employees, being sued for said layoffs, and generally making plans out loud on the platform to target users. $8 a month to get a blue check mark next to their name.
The Twitter purchase didn’t exactly help Musk’s case in the lawsuit over his pay package. In addition to Tesla, Musk is already CEO of SpaceX, The Boring Company, OpenAI and Neuralink. With Twitter, Musk will only give credence to Tornetta’s claims that Musk is a “part-time executive” at Tesla.
Tornetta also claims that the board set low bar for performance targets for Musk and that the grant was “claimed for the overt purpose of colonizing Mars (the planet).”
Tesla has said Musk’s compensation package has delivered a 10-fold increase in shareholder value.
The trial will be decided by Kathaleen McCormick on the Delaware Court of Chancery. McCormick oversaw Twitter’s lawsuit against Musk that ended in closing his $44 billion deal, an acquisition he financed largely by selling his Tesla stock.
The grant ‘hit its target of focusing Musk on Tesla’
Tornetta’s attorneys argue that the 2018 package failed to achieve its intended goal of getting Musk to focus on Tesla, and no wonder — there were no provisions requiring Musk to spend time or attention on Tesla, nor were there any provisions prohibiting Musk’s allocation of time or attention to Tesla limited non-Tesla efforts.
“Indeed, Musk testified that since the grant was approved, he has spent a little more than half of his time on Tesla matters and devoted considerable time and attention to several other endeavors,” the lawsuit reads.
Musk’s lawyers replied that his ambition makes him unique as CEO, and that he doesn’t beat around the bush to determine the time he spends at the company.
The controversial pay package allows Musk to buy 1% of Tesla stock at a discount every time its performance and financial targets are met. If they are not met, Musk gets nothing. Tesla hit 11 of the 12 targets, according to court documents.
“In any case, under the proposed plan, Musk would not earn any compensation from Tesla unless he experienced massive growth, which could not be achieved without a lot of time and attention from the CEO,” Musk’s attorneys said.
The lawsuit against Musk also alleges that the package was not entirely fair because Musk controls the board.
“None of the committee members were independent of Musk,” Tornetta’s attorneys wrote.
For example, Kimbal Musk, Musk’s brother, sits on the board of Tesla – a pretty obvious conflict of interest. Tornetta’s filing also points to former board member Antonio Gracias, who describes the plaintiff as a close friend of Musk’s. Gracias has personally and through his private equity firm collectively invested more than half a billion dollars in “essentially all of Musk’s entities,” according to the filing, including PayPal, Tesla, SpaceX, SolarCity, The Boring Company and Neuralink.
In addition, the filing mentions Ira Ehrenpreis and James Murdoch, who are both still on Tesla’s board, personal friends of Musk and investors in Musk’s entities. Gracias, Murdoch and Ehrenpreis are also listed among the defendants in the case.