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Elon Musk faces trial over $56 billion pay package

By: April Carson

Elon Musk is headed to court to defend his $56 billion Tesla Inc pay package. The package has come under fire for allegedly benefiting him without requiring his full-time commitment at the company.

One of Tesla's shareholders wishes to take back Musk's 2018 pay, insinuating that the board set easy goals for performance and that Musk only created the package so he could fund his space exploration endeavors. However, Tesla has fought back, explaining how the package actually increased shareholder value by ten times.

The case will be tried in Delaware, where many large companies are incorporated. This is because Delaware has laws that are friendly to businesses, and it also has a court system that is experienced in handling corporate disputes.

Delaware's Court of Chancery will preside over the trial, which is set to begin on November 14. The judge overseeing the case, Kathaleen McCormick, was also incharged of Twitter's previous lawsuit against Musk. That suit ended last month when he agreed to finalize his $44-billion deal for Twitter--an acquisition which he financed largely using Tesla stock.

The current case against Musk centers around a compensation package that was approved by Tesla's board of directors in 2018.

Ann Lipton, professor at Tulane Law School stated that if Musk were to lose his pay package in a dramatic way, it would be difficult to say how Tesla or Twitter would function going forward.

Though Lipton and other legal professionals noted that Tesla shareholder Richard Tornetta's lawsuit against Musk will be more complicated than Twitter's previous case.

Last week, Musk appointed himself Twitter CEO in addition to his current entrepreneurial endeavors, which include being the founder and CEO of SpaceX- one of the world's most valuable private companies. He is also a founding member or co-founder of Neuralink, The Boring Co., and OpenAI.

Twitter's board of directors responded to the news of Musk's new title by saying that they were "pleased" with his progress at the company.

"We are pleased with Elon's focus on and execution of our business plan," the board said in a statement.

Tornetta's lawyers have argued that the 2018 compensation package for Musk failed to achieve its goal of focusing the Tesla CEO on his work at the electric carmaker. In a deposition, Musk testified that he worked at SpaceX on Mondays and Thursdays in 2018 and only Tuesday, Wednesday, and Friday at Tesla. His lawyers have used this testimony to portray him as a "part-time CEO."

In a 2018 email to Gabrielle Toledano, Tesla's Chief People Officer at the time, Tesla board chair Robyn Denholm said that Elon Musk was "becoming more and more problematic" because of the "minimal time" he was devoting to the company.

"It is becoming extremely concerning," Denholm wrote. "He works 120 hour weeks leading both SpaceX and Tesla but there are now a number of senior level people leaving or considering leaving."

The company has argued that the package was not about requiring Musk to clock in for specific hours each week, but to hit "audacious" targets. This would enrich Musk and shareholders like Tornetta alike.

However, some investors are not convinced. They argue that the package is exorbitant and unfair, particularly given that Tesla has yet to turn a profit.

The package at dispute allows Musk to buy 1% of Tesla's stock cheaply each time he meets either performance or financial targets; if not, then he gets nothing. Out of the 12 potential targets, Tesla hit 11 as its value increased extraordinarily from $50 billion to $650 billion due Model 3 production being ramped up , court papers state.

According to Amit Batish at Equilar, an executive pay research firm, Musk's vested grants are worth approximately $50 billion. These grants constitute his $200-billion fortune - the world's biggest.

This makes Musk the world's highest-paid CEO by a long shot. The second highest-paid CEO, Oracle's Larry Ellison, made $67.3 million in total compensation last year. That's less than one-third of Musk's earnings.

Batish also states thatMusk's stock grant package is larger than the joint pay of the 200 highest-paid CEOs last year combined - by six times.

Tornetta will probably focus his case on the fact that the package was created and approved by directors influenced by Musk, and then sold to shareholders without revealing that achieving the earlier goals was unlikely based on internal estimates.

Many of Tornetta's filings provide examples where Musk had significant influence over the board.

Antonio Gracias, who the plaintiff called a close friend of Musk and was lead independent director from 2010-19, testified in his 2021 deposition that if Musk wanted to sell Tesla, he could--and the board couldn't stop him.

"There is no question that he controls the board," Gracias said.

Gracias also acknowledged that the compensation committee was "heavily influenced by Elon."

"It's unclear who actually has control in this company. Does Elon Musk work for the board or does the board work for him," said Minor Myers, a professor at UConn School of Law.

If the current pay package is rescinded, according to Myers, it wouldn't be difficult for Board members to come up with a new one-- taking McCormick's ruling into account.

However, recent events have made the process more complicated.

Myers said it will be difficult to figure out how to stop Musk from being pulled away by his other businesses, given that he now owns Twitter.

"The board has to ask, 'How much leeway do we give this guy?'" said Myers.

"How do we make sure he's focused on Tesla and not tweeting all day?"

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About the Blogger:

April Carson is the daughter of Billy Carson. She received her bachelor's degree in Social Sciences from Jacksonville University, where she was also on the Women's Basketball team. She now has a successful clothing company that specializes in organic baby clothes and other items. Take a look at their most popular fall fashions on

To read more of April's blogs, check out her website! She publishes new blogs on a daily basis, including the most helpful mommy advice and baby care tips! Follow on IG @bossbabymav



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