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Trial Begins Over $56 Billion Payment Package From Tesla Boss Musk

A trial has begun over shareholder allegations that Tesla CEO Elon Musk’s $56 billion payout package was based on easily achievable performance targets, and that investors were duped into approving it. , and Musk is scheduled to take the stand later this week.

A Tesla shareholder hopes to prove during the five-day trial that began Monday that Musk used his dominance over the electric vehicle maker’s board of directors to dictate the terms of the 2018 package, which did not require him to work at Tesla full-time.

Musk, the world’s richest person, will testify on Wednesday, Greg Varallo, a lawyer for shareholder Richard Tornetta, said Monday in court in Wilmington, Delaware.

The trial began with Ira Ehrenpreis, a Tesla board member since 2007 and chair of the committee that oversaw the pay package, outlining the thinking behind the unprecedented compensation deal.

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“I wanted to make sure that [Musk] he remained the leader of Tesla for a longer period of time,” Ehrenpreis testified, adding that he had been leading other companies, from rocket company SpaceX to tunneling company, The Boring Company.

The court was shown a short video clip of Musk’s statement in the case. He described how Ehrenpreis called him to discuss creating a payment package to replace his 2012 payment agreement. Musk said he suggested to Ehrenpreis “a larger amount but with much more difficult milestones” than the 2012 agreement.

Tornetta has asked the court to rescind the salary package, which is six times the top 200 combined CEO salaries in 2021, according to Amit Batish of research firm Equilar.

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Musk and Tesla’s directors, who are also accused, have denied the allegations, arguing that the pay package ensured that the businessman would guide Tesla through a critical period, helping the shares rise tenfold.

The lawsuit argues that the pay package should have required Musk to work full-time at Tesla.

The company’s shareholders worry that Musk will be distracted by Twitter, which he bought for $44 billion last month.

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Musk told a business conference on the sidelines of the G20 summit in Bali, Indonesia, on Monday that he had too much on his plate at the moment.

The case will be decided by Chancellor Kathaleen McCormick of the Delaware Court of Chancery, who also oversaw the legal dispute between Twitter Inc and Musk.

Wide freedom to establish the payment

Legal experts said Musk is in a better legal position in the case of the pay package than in the Twitter lawsuit, which prevented it from walking away from the acquisition.

Boards have wide latitude in setting executive compensation, according to legal experts.

However, directors must meet more stringent legal tests if the payment involves a majority shareholder. Part of this essay will likely focus on whether that description fits Musk.

While he owned 21.9 percent of Tesla in 2018, the plaintiffs are likely to cite what is viewed as his domineering personality and ties to the directors.

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“There is no case where a 21.9 percent shareholder who is also the chief executive officer has been given a structured payment plan of this magnitude,” Lawrence Cunningham, a professor of corporate law at George Washington University, said of the lack of precedent.

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A pay battle between The Walt Disney Co and a shareholder shows how much deference Delaware courts give boards when setting compensation.

A Disney shareholder sued former chairman Michael Ovitz, who had been with the company less than two years, in 1997 for $130 million in damages. The shareholder lost at trial in 2005 and the Delaware Supreme Court affirmed the ruling in 2006.

The disputed Tesla package allows Musk to buy one percent of Tesla’s stock at a deep discount each time increasing financial and performance targets are met. Otherwise, Musk gets nothing.

Tesla hit 11 of the 12 targets as its value briefly soared to more than $1 trillion from $50 billion, according to court documents.

The decision is likely to take about three months after trial and could be appealed to the Delaware Supreme Court.

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