WILMINGTON, Del., Nov. 14 (Reuters) – A trial opened Monday over shareholder allegations that Tesla CEO Elon Musk’s $56 billion salary package was rigged with soft performance targets and that investors were tricked into agreeing to it. Platform. later this week.
A Tesla (TSLA.O) The contributor hopes to prove during the five-day trial that Musk used his dominance of the electric vehicle manufacturer’s board to dictate the terms of the 2018 package, which didn’t even require him to work for Tesla full-time.
Musk, the richest person in the world, will testify on Wednesday, Greg Varallo, attorney for shareholder Richard Tornita, told a court in Wilmington, Delaware, on Monday.
The trial began with Ira Ehrenpreis, a member of Tesla’s board of directors since 2007 and chair of the committee that oversaw the pay package, describing the process of developing the standard compensation deal.
“I wanted to make sure Elon stayed on as Tesla’s leader for a longer period of time,” Ehrenbrais testified.
The court was shown a short video clip of Musk’s statement in the case. He described how Ehrenpress contacted him to discuss creating a salary package to replace the 2012 wage deal, which was nearing completion. Musk said he proposed to Ehrenpress “a larger amount but with much more difficult stages” than the 2012 deal.
Tornita has asked the court to cancel the pay package, which is six times more than the salaries of the 200 CEOs combined in 2021, according to Amit Patish of research firm Equilar.
The directors of Musk and Tesla, who are also accused, denied the allegations. They argued that the pay package did what it was intended to do – ensure the entrepreneur successfully steered Tesla through a critical period, helping push the stock tenfold higher.
The Tesla shareholder lawsuit argues that the pay package should require Musk to work full time at Tesla.
The company’s shareholders became concerned that Musk was being distracted by Twitter, which he warned might not survive the economic slowdown.
The case will be decided by Counsel Kathleen McCormick of the Delaware District Court. She oversaw the legal dispute between Twitter Inc and Musk that ended with his purchase of the social media platform for $44 billion last month.
Musk told a business conference on the sidelines of the G20 summit in Bali, Indonesia, on Monday, that he had a lot to do at the moment.
Legal experts said Musk was in a better legal position in the wages case than he was in the Twitter lawsuit, which prevented him from walking away from the acquisition.
Boards have wide latitude in determining executive compensation, according to legal experts.
However, directors must undergo stricter legal testing if the pay package includes a controlling shareholder, and part of that trial will likely focus on whether that description fits Musk. While he owned just 21.9% of Tesla in 2018, prosecutors will likely cite what is seen as his domineering personality and relationships with principals.
The contested package allows Musk to buy 1% of Tesla’s stock at a huge discount every time his uplifting performance and financial goals are met. Otherwise, Musk gets nothing.
Tesla achieved 11 of 12 targets with its value briefly ballooning to more than $1 trillion from $50 billion, according to court papers.
The decision will likely take about three months after the trial and can be appealed to the Delaware Supreme Court.
Additional reporting by Tom Hales in Wilmington, Delaware. Additional reporting by Hyunjoo Jin in San Francisco; Editing by Jonathan Otis, Nolene Walder and Bill Berkrot
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