Court trial over Musk's money

A court in the US state of Delaware has quashed Tesla attempts to throw out a shareholder lawsuit over the compensation package of CEO Elon Musk.

While Musk takes no salary or cash bonuses from Tesla, his 2018 stock compensation toted up to about $US2.6 billion when the board approved it in March last year.

Musk’s package includes stock options which are incentivised. A first tranche is triggered when the company’s market capitalisation reaches $US100 billion, then the rest follow in $US50 billion increments. Profitability of Tesla is not a condition of Musk’s compensation package.

The lawsuit, which Tesla now has to defend and to provide expansive “discovery” information for, came from shareholder Richard Tornetta, who insisted the board conspired against Tesla’s own financial interest to reward its CEO.

At the time of the board’s approval, stock analysts from America’s largest investment banks suggested Musk’s compensation could rise to as much as $US70 billion for one year’s work if the company’s market capitalisation rose to the $US650 billion some of them were projecting.

The Delaware Court of Chancery Vice Chancellor, Joseph Slights, ruled against a Tesla demand to toss out the complaint, which insists the compensation package “unfairly enriches” the CEO at the expense of shareholders.

Tornetta’s suit asks that Musk’s compensation package be rescinded and the board of Tesla should be completely overhauled with greater shareholder protection in mind.
“Plaintiff has well pled, however, that the board level review was not divorced from Musk’s influence,” Slights wrote.

Tesla, which has never posted a profit in its 14-year history, conceded to the court that its compensation committee did not operate independent of Musk.

Slights himself ruled that while Musk wasn’t the majority shareholder in Tesla, he behaved as its effective controller from a legal perspective, which activated a higher level of legal oversight for the car-maker’s decisions involving its CEO.

Musk’s compensation package was approved by 73 per cent of the votes cast, though proxy advisory firm Institutional Shareholder Services recommended against it, noting that it would make Musk by far the best paid US executive in history.

Slights insisted that had the remuneration package been negotiated and approved by “truly independent directors” and approved by a majority of shareholders “independent of Musk” then he would have tossed out the complaint.