Tesla, opponents of Musk’s pay package clash over resolving compensation lawsuit

Electric vehicle-maker Tesla and opponents of CEO Elon Musk’s $56 billion pay package clashed on Friday as they look to resolve the legal dispute over the package and billions of dollars in potential legal fees that hinge on its outcome.

The automaker said in a court filing that the Delaware judge who voided Musk’s compensation package in a January ruling should recognize that shareholders voted to reinstate the package this month and reverse her prior ruling. 

Though shareholders voted on June 13 to reinstate the compensation plan that was originally approved in 2018, it remains on hold pending the resolution of the lawsuit.

The legal team for Richard Tornetta, the shareholder who sued to invalidate Musk’s pay package, countered that Tesla shareholders voting to reinstate the pay plan has no legal effect, so Tesla must appeal to the Delaware Supreme Court to reverse the January ruling.

TESLA SHAREHOLDERS VOTE TO REINSTATE MUSK’S $56B PAY PACKAGE

Elon Musk Tesla

The fate of Tesla CEO Elon Musk’s compensation plan lies with the court after shareholders voted to reinstate the package that a judge voided in January. (Photo by Marc Piasecki/Getty Images / Getty Images)

Further, they argued that before Tesla can file its appeal, the Delaware judge who issued the ruling, Chancellor Kathaleen McCormick, has to determine the legal fee that Tesla must pay them for winning the case.

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Tornetta’s attorneys had previously asked for 29 million shares of Tesla stock, an amount worth over $5 billion, as the legal fee. They said Friday that Tesla could pay them at least $1.1 billion as an alternative – which would be based on precedent in the Delaware Court of Chancery, although they characterized that amount as “unfairly low.”

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Tesla CEO Elon Musk

Musk’s compensation plan was based on Tesla hitting certain performance-based targets. (Photo by ETIENNE LAURENT/AFP via Getty Images / Getty Images)

Tesla said the judge should put aside the dispute over legal fees and instead determine the impact of the shareholder vote, which could drastically reduce the legal fee. It also indicated it plans to file a motion to reverse the January ruling that should result in it winning the case.

The company argued that because the pay package was reviewed by an independent board member and reapproved by shareholders, it resolved the judge’s finding that Musk dominated the negotiations due to his personal relationships with some board members and that the board didn’t adequately disclose information about the compensation plan.

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Tesla vehicle showroom

Opponents of Musk’s pay plan argue the shareholder vote has no legal significance. (Photo by Joe Raedle/Getty Images / Getty Images)

Tornetta’s legal team rejected that approach, arguing that the board process for proposing the ratification vote was flawed and that the shareholder vote was coerced by Musk’s threats to potentially shift his focus on artificial intelligence (AI) investment away from Tesla without more control.

Musk’s pay package, which consists of performance-based targets that trigger stock option awards that he must hold for a period of five years before exercising, was valued at $56 billion at the time the last milestone was achieved, according to Tesla. 

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The value of the package fluctuates with changes in Tesla’s stock price and is worth about $48 billion based on Friday’s share price of $182.19.

Reuters contributed to this report.

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