Judge asks if Musk’s $56 billion Tesla salary is contingent on legal ‘shot to death’

By Tom Hals

WILMINGTON, Delaware (Reuters) – A court case challenging Elon Musk’s $56 billion salary at Tesla Inc. could hinge on whether a single material misleading disclosure to shareholders would invalidate the compensation plan the judge said , who negotiated the dispute, described it as a “killer shot”.

At Tuesday’s closing arguments in a Delaware court, a judge, urging attorneys representing Tesla directors and the investor, challenged Musk’s salary over whether the company’s explosive growth outweighed misleading disclosures about the salary plan in 2018.

The arguments followed a five-day trial in November in the Court of Chancery that included testimonies from Tesla’s chief executive about the origins of the 2018 pay package and whether his performance goals were difficult to meet.

The pay package added to Musk’s fortune, the second largest in the world, and has no equal in the executive pay world. Tesla investor Richard Tornetta sued Musk and the board in 2018, arguing that Musk was being unfairly enriched and should be invalidated.

Tornetta’s attorney, Greg Varallo, told Chancellor Kathaleen McCormick that because the plan was based on a shareholder vote, any material misleading information given to shareholders meant the plan should be voided.

He said investors were never told that Musk dictated the plan to the board or that the company’s supposedly independent directors were bound to Musk by personal and professional ties.

McCormick called his argument the “killer shot” and said it was “elegant,” but she was skeptical. She asked both sides to give their additional briefing on the argument.

Lawyers for Tesla directors argued that Tornetta never questioned the key details of the proxy that described the plan, such as the goals Musk had to meet.

The directors’ attorneys argued that if McCormick found that statements about the director’s ties to Musk were misleading, she should then decide whether the plan was fair to shareholders. The directors’ legal team argued that it did so because it resulted in a 10-fold increase in Tesla’s stock price.

“Shareholders got their consideration,” said Daniel Slifkin, an attorney for the Tesla board of directors. “Shouldn’t Mr. Musk get his consideration?”

The package allows Musk to buy 1% of Tesla stock at a deep discount each time escalating performance and financial goals are met. If targets aren’t met, Musk gets nothing, though his fortune still grows as Tesla shares rise since he’s a major shareholder.

Tesla has met all 12 targets, according to Varallo, as Tesla’s value briefly rose to over $1 trillion in 2021 from $50 billion when the package was negotiated.

Musk, who also runs rocket company SpaceX, told the court during the trial that he viewed the salary package as a way to fulfill his ambitions for interplanetary travel.

“It’s a way of taking humanity to Mars,” he testified in November. “So Tesla can help potentially make that happen.”

A verdict from McCormick is expected to take months.

(Reporting by Tom Hals in Wilmington, Del. Editing by David Gregorio and Matthew Lewis)


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