Many have said it before: Elon Musk has a lot, maybe too much, on his plate.
On Wednesday morning, the Tesla (NASDAQ: TSLA) CEO — also SpaceX CEO, Neuralink founder, The Boring Company CEO, and recently Twitter’s new owner and lord commander — sat behind the witness stand to defend why he’s worth the massive Tesla pay package that helped make him the world’s wealthiest person.
“The amount of pain, no words can express,” Musk said, recalling what it took for him, as CEO, to bring Tesla from near failure in 2017 to explosive growth. “It’s pain I would not wish to inflict upon anyone.”
And the reward was the largest amount of compensation a publicly traded company has ever awarded its CEO.
The Package
The compensation package — worth nearly $56 billion in 2018 when it was approved, with a net value of $50.9 billion today — depended on the company hitting certain targets in the next 10 years, with shareholders approving 12 tranches of options that Musk needed to surpass before vesting the full amount. This is on top of the about 22% shares of the company that he already owns.
The targets, which the plaintiff claims were too easy for the CEO to achieve, included attaining a market valuation of $650 billion, which at the time seemed impossible, considering it was over 10 times the company’s 2018 value of around $59 billion.
Tesla’s valuation hit the $1 trillion mark, albeit briefly, in 2021 following an announcement from Hertz, the car rental giant, saying that it would be buying 100,000 Tesla vehicles to add to its fleet. Then in 2022, after Tesla reported its first-quarter earnings, the company exceeded benchmarks and allowed the vesting of the ninth through the 11th of the 12 tranches, the last of which Musk is set to collect in early 2023.
The Case
The lawsuit, filed by minor shareholder Richard J. Tornetta, alleges that Musk’s compensation package was unjust enrichment and contends that he dictated his pay package to a board made up of close friends and his brother Kimbal Musk. It will seek to prove that the board failed to meet its legal duty to act in the best interest of the shareholders.
In his examination of Musk, Tornetta’s lawyer Gregory Varallo sought to show the power of Musk’s grip on the company, highlighting that the CEO often acted on his own, with little oversight from the board, citing instances like Musk recently announcing a potential stock buyback, him declaring that Tesla would become more valuable than Apple and Saudi Aramco, and bringing over Tesla engineers to help at Twitter.
The latter Musk said was done voluntarily and on the engineers’ own time.
The trial will also focus on whether the package requires Musk to work full-time at Tesla. Long-time Tesla board member Ira Ehrenpreis told the court on Monday that the massive compensation package was designed to keep Musk’s attention on Tesla.
The suit described Musk as a “part-time CEO,” given his other concurrent pursuits. Just a few days ago, Musk was tweeting about how he’ll be working and sleeping at the Twitter headquarters “until the org is fixed” (note: the Tweet has since been deleted). The evening prior to him taking the stand, he was sending a sort of opt-in email to Twitter employees about “Twitter 2.0.”
Outside of the lawsuit, shareholders are also concerned over how much more of Musk’s time will be consumed by Twitter, and how the chaos at the social media firm in the past few weeks has dented Tesla stock. It has fallen by as much as 30% since he took over Twitter. The social media platform has been called an ‘albatross,’ and has caused Tesla to be taken off of Wedbush’s best ideas list earlier in November.
The case will be decided by Chancellor Kathaleen McCormick of Delaware’s Court of Chancery — the same judge who oversaw the short-lived dispute between Musk and Twitter, which ended before it reached trial, with Musk closing the $44 billion purchase of the platform.
But unlike the Twitter dispute, analysts believe that Musk has a higher chance of winning this case. The trial is expected to wrap by the end of this week. But Chancellor McCormick’s ruling will come later in the next few months.
Information for this briefing was found via CNN, The Verge, the New York Times, Insider, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
