Elon Musk defends massive Tesla pay package in shareholder lawsuit
Tesla CEO Elon Musk took the stand Wednesday to defend himself in a shareholder lawsuit challenging a compensation package that the company’s board of directors is worth more than $55 trillion (Cdn73 trillion).
Musk denied that he dictated the terms of the compensation package or participated in meetings where the board, its compensation committee or a task force that helped develop it discussed the plan.
“I was completely focused on running the business,” he said.
Musk, known for his combative testimony, told the court in opening statements that he thought it was “highly unlikely” that Tesla Inc. would achieve his vision in 2016, demanding his full attention.
Musk acknowledged that he vacationed with board members and sometimes tweeted about the company without clearing messages with Tesla’s lawyer, as required by a 2018 settlement with a securities regulator.
Tesla shareholder Richard Tornetta first filed the lawsuit in 2018, seeking to prove that Musk used his dominance on Tesla’s board to set the terms of his compensation package, which did not require him to work full-time at Tesla. Tornetta asked the judge to cancel Musk’s salary package.
In court Wednesday, Tornetta’s attorney tried to portray Tesla as a company owned by Musk, the world’s richest man, who was seeking a record pay package with easy targets to help fund his ambitions to travel to Mars.
Musk said he wouldn’t accept a pay plan that required him to punch a clock or commit certain hours to Tesla.
“I work pretty much all the time,” he said. “I don’t know what the watch punk would get.”
Musk’s testimony comes as he struggles to oversee a chaotic overhaul of Twitter Inc., the social media platform he was forced to buy for $44 billion after he tried to back out of that deal before the same judge.
On Monday and Tuesday, the judge rehearsed Musk’s testimony in the Tesla case through excerpts from his deposition in 2021. In a clip, Musk denied that the board had to discuss requiring him to spend more time with Tesla.
“That would have been silly,” Musk said.
Worry about Twitter distractions
They are understood to be Tesla investors is increasingly concerned about Musk’s approach to Twitterand on the stand the billionaire said that he puts his attention where it is most needed, which in 2017 was Tesla.
“So in times of crisis, the allocation shifts to where the crisis is,” said Musk, dressed in a dark suit and tie.
On Monday, Musk tweeted that he worked through the night at Twitter’s San Francisco headquarters and would continue to “work and sleep here” until the social media platform is fixed.
Musk tweeted on Monday that “Tesla has me covered too,” saying he planned to work at the electric vehicle maker for part of this week. Tesla has an office in Palo Alto, California and a factory in Fremont, California.
However, both tweets were unavailable as of Wednesday morning.
“Tesla investors are going to be disappointed,” said Gene Munster, managing partner at venture capital firm Loup Ventures. “Probably spending more time on Twitter than any Tesla investor feels comfortable with.”
Tesla shares have fallen 50 percent since early April, when Musk announced he was taking a stake in Twitter. Musk’s sales of Tesla stock — totaling $20 billion since he disclosed his Twitter stake — have added to the pressure.
A special case
The controversial Tesla package allows Musk to buy a percentage of Tesla stock at a deep discount whenever performance and financial goals are met. Otherwise, Musk gets nothing.
Tesla hit 11 of 12 targets, according to court documents.
The legal team for Musk and Tesla executives, who are also being sued, have presented the pay package as an audacious target, driving a tenfold increase in Tesla’s stock value to more than $600 billion from about $50 billion.
They argue that the plan was developed by independent board members, with advice from outside professionals and input from major shareholders.
Shareholders generally cannot challenge executive compensation because courts typically defer to directors’ judgment. Musk survived a motion to dismiss the cases because it was ruled he could be considered a controlling shareholder, meaning stricter rules apply.
“There is no case where a 21.9 percent shareholder who is a chief executive has received a structured payment plan of this size,” George Washington University corporate law professor Lawrence Cunningham said of the precedent.
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