Wilmington, Del., Nov. 14 (Reuters) – Tesla Inc Chief Executive Elon Musk’s $56 billion pay package was rigged with easy performance targets and an investigation by shareholders into allegations that investors were cheated out of it began on Monday. Later this week.
A Tesla (TSLA.O) The shareholder hopes to demonstrate during the five-day trial that Musk used his dominance of the electric automaker’s board to dictate the terms of the 2018 package.
Musk, the world’s richest man, will testify on Wednesday, Greg Varallo, a lawyer for shareholder Richard Tornetta, said in court in Wilmington, Delaware, on Monday.
The trial began with Ira Ehrenpreis, a Tesla board member since 2007, taking the stand describing the company’s early years and Musk’s role.
“I was very impressed with his vision for this initiative,” Ehrenprice said.
Torneta has asked the court to cancel a pay package six times larger than the salaries of 200 CEOs from 2021, according to Amit Bhatish of research firm Equilar.
Defendants Musk and Tesla’s directors have denied the allegations. The pay package, they argued, was aimed at doing just that — making sure the entrepreneur successfully led Tesla through a critical period that helped drive the stock up tenfold.
The case will be decided by Delaware Court of Chancery President Kathleen McCormick. He oversaw the legal dispute between Twitter Inc (TWTR.MX) And that ended with Musk buying the social media platform last month for $44 billion.
The Tesla shareholder lawsuit argues that the salary package should have required Musk to work full-time at Tesla. Company shareholders are concerned that Musk is being distracted by Twitter, which he has warned will not survive the economic downturn.
Speaking at a business conference on the sidelines of the G20 summit in Bali, Indonesia on Monday, Musk said he has a lot on his plate at the moment.
Legal experts have said Musk is in a better legal position in the salary case than in the Twitter case, which prevented him from walking away from the acquisition.
According to legal experts, boards have wide latitude to set executive compensation.
However, if the shareholder controls the pay package, directors must meet more stringent legal tests, and part of this test will focus on whether that profile fits Musk. Although he only owned 21.9% of Tesla in 2018, plaintiffs are likely to cite his perceived domineering personality and relationships with directors.
In all, 19 witnesses are scheduled to testify, including directors and executives from 2018, compensation experts and consultants who helped shape the pay package.
The controversial package allows Musk to buy 1% of Tesla’s stock at a deep discount each time it hits incremental performance and financial goals. Otherwise, Kasturi gets nothing.
According to court documents, Tesla hit 11 of 12 targets, and its value briefly rose from $50 billion to more than $1 trillion.
A decision will be made three months after the hearing and may be appealed to the Delaware Supreme Court.
Reporting by Tom Halls in Wilmington, Delaware; Editing by David Gregorio and Jonathan Otis
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