December 5, 2022

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As Musk focuses on Twitter, his $56 billion Tesla salary from Health & Fitness Journal goes to court

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©Health & Fitness Journal. FILE PHOTO: SpaceX Chief Engineer Elon Musk gestures during a joint news conference with T-Mobile CEO Mike Sievert at the SpaceX Starbase in Brownsville, Texas, U.S. August 25, 2022. REUTERS/Adrees Latif 2/2

By Tom Hals and Hyunjoo Jin

WILMINGTON, Del. (Health & Fitness Journal) – While Elon Musk is busy with his Twitter overhaul, the entrepreneur faces a court case over his record pay package from Tesla (NASDAQ:) Inc.’s time presence at the automaker.

A Tesla shareholder is trying to reverse Musk’s 2018 salary agreement, claiming the board set simple performance targets and that Musk put the package together to fund his dream of colonizing Mars.

Tesla has countered that the package brought shareholders an extraordinary 10x increase in value.

The trial begins November 14 and will be decided by Kathaleen McCormick (NYSE:) in the Delaware Court of Chancery. She oversaw Twitter’s lawsuit against Musk, which ended last month when he agreed to complete his $44 billion deal for Twitter, a takeover he funded largely with his Tesla stock.

“If Musk loses this pay package in a massive way, I think we can expect a lot of things that are really hard to predict, like what’s going to happen in the future in terms of running Tesla and getting paid for Twitter,” he said Ann Lipton, a professor at Tulane Law School.

However, Lipton and other legal experts said Tesla shareholder Richard Tornetta’s lawsuit will be much more difficult than Twitter’s case against Musk.

Musk founded and is CEO of SpaceX, one of the most valuable private companies in the world, and founded or co-founded Neuralink, which makes brain implants, tunneling company The Boring Co, and OpenAI, an artificial intelligence research lab. Last week, he named himself CEO of Twitter.

‘Part-time Managing Director’

Tornetta’s attorneys argue that the 2018 package failed in its stated purpose of focusing Musk on Tesla. They portray Musk as a “part-time CEO” and cite his statement that in 2018 he said he worked Tuesdays, Wednesdays and Fridays at the electric car maker and Mondays and Thursdays at the rocket company SpaceX.

According to the lawsuit, Tesla CEO Robyn Denholm said in a 2018 email to Gabrielle Toledano, who was Tesla’s chief people officer at the time, that the “minimum time” Musk was at Tesla was “getting increasingly problematic.”

The company has argued that the package wasn’t about requiring Musk to chime a clock and be on site at specific times each week, but rather to meet “bold” goals, which Musk, but also shareholders like Tornetta, did enriched.

The controversial pay package allows Musk to buy 1% of Tesla stock at a deep discount each time escalating performance and financial goals are met; otherwise Musk gets nothing. Tesla has met 11 of the 12 targets, according to court documents, as its value rose from $50 billion to $650 billion after ramping up Model 3 production.

According to Amit Batish of Equilar, an executive compensation research firm, Musk has approximately $50 billion in vested awards. The grants add to his $200 billion fortune, the largest in the world.

Musk’s stock grant package is larger than the combined compensation of the 200 highest-paid CEOs last year — six times as much, according to Batish.

The trial will likely focus on Tornetta’s claims that the package was developed and approved by Musk-hired directors and promoted to shareholders without revealing that the first tranches would likely be fulfilled based on internal projections.

BOARD CONTROL

Tornetta’s files are full of examples of a Musk-controlled board.

For example, Antonio Gracias, described by the plaintiff as a close friend of Musk and who was a senior independent director from 2010 to 2019, testified in his 2021 testimony that Musk could sell Tesla if he wanted to and the board could not prevent it.

“Who worked for whom? Does Elon Musk work for the board or does the board work for Elon Musk,” said Minor Myers, a professor at the UConn School of Law.

Myers said if the pay package is rescinded, the board could simply create a new one and do so with McCormick’s decision to run them.

But circumstances have changed, which complicates the process.

“He now owns Twitter. How are they going to accommodate that?” said Myers, who added that figuring out how to keep Musk from getting distracted by other endeavors will be a challenge.

“How much money do you have to put up with this guy to get his attention,” he said.

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