Complaint Over Elon Musk’s $56 Billion Pay Package from Tesla Goes to Trial

Tesla shareholder Richard Tornetta’s legal complaint over Elon Musk’s 2018 pay package from Tesla went to trial last week. The complaint alleges that the $56 billion pay package was excessive and dictated largely by Musk. Tornetta also alleges that Tesla’s board of directors were too quick to go along with Musk’s demands and misled shareholders.

Last week, a Delaware judge heard five days’ worth of testimony, including three hours of testimony from Elon Musk. Musk and individuals who were members of Tesla’s board of directors at the time defended the pay package, saying that it was justified by Tesla’s rapid growth.

“It was a great deal for the shareholders,” said former board member Antonio Gracias.

At the time, Musk mostly split his time between SpaceX, Tesla, and the Boring Company. The defense said the pay package was a way to ensure that Musk paid proper attention to Tesla during a critical phase in the company’s history. Tesla nearly went bankrupt in 2017 when it faced issues that included problems with manufacturing the Model 3. The pay package was structured to provide opportunities to buy Tesla stock at a discount when Tesla met escalating performance and financial goals. If it didn’t meet those goals, Musk got nothing.

Tesla hit 11 of the 12 predetermined goals. Musk could sink the pay into his ultimate vision of making humans a multi-planetary species.

Just in the past couple of years, Tesla set a series of company records for quarterly vehicle deliveries and opened Gigafactories near Berlin, Germany, and Austin, Texas.

Major setbacks included delays in the opening of the German Gigafactory caused mostly by regulatory bureaucracy and lawsuits from German environmentalist groups. It had to close the Gigafactory in China for a while due to the Chinese government’s COVID-19 lockdowns.

Like most major automakers, Tesla had to issue recalls on a regular basis, with the latest recall involving more than 320,000 Model 3 and Model Y vehicles to resolve a software glitch affecting their taillights. The NHTSA has a VIN lookup tool you can use to see if your vehicle might be subject to a recall regardless of which company made your vehicle.

Tornetta’s legal team asked for the plan to be rescinded and Musk’s stock to be returned to Tesla. He alleges that the board of directors concealed important information about the plan and overstated how difficult it would be to reach three of the performance goals. The plaintiff presented the board of directors as mostly consisting of Musk’s friends or business partners and downplayed conditions conceded by Musk.

The concessions included the best method for granting the stock grants and a requirement to hold the stock awarded under the plan for at least five years.

The legal teams in this case wrapped their arguments up on Friday. Columbia Law School professor Eric Talley has been following the case and says judge is likely to rule for the defense.

“My sense is that even though it went all the way to trial, a ruling is going to favor Mr. Musk,” he said. He also cited the difficulty in keeping Musk’s attention, saying that “he’s like a Labrador retriever. He sees a ball and he runs after it. You could almost make an argument they didn’t pay him enough because he ran off after Twitter.”

Even so, a ruling could take months. The case can be appealed to Delaware’s state supreme court.