Musk defends his $56bn pay package at Tesla | Business and Economy NewsNovember 16, 2022
Elon Musk has told a court that he was completely focused on Tesla in 2017 when the electric car maker was in “crisis”, as he tried to rebut claims that his $56bn pay package was based on easy performance targets and approved by a compliant board of directors.
Tesla shareholder Richard Tornetta sued Musk and the board in 2018 and hopes to prove that Musk used his dominance over Tesla’s board to dictate terms of the package, which did not require him to work at Tesla full-time.
On Wednesday Musk, the world’s richest person, described in a Delaware courtroom how the automaker was struggling to survive in 2017, when the pay package was developed.
“I was entirely focused on the execution of the company,” Musk said when he was questioned about Tesla by his lawyer Evan Chesler, adding that he did not dictate the terms of the pay plan.
He said he would not accept a pay plan that required him to punch a clock or commit certain hours to Tesla. “I pretty much work all the time,” he said. “I don’t know what a punch clock would achieve.”
The five-day trial before Chancellor Kathaleen McCormick comes as Musk is struggling to oversee a chaotic overhaul of Twitter, the social media platform he was forced to buy for $44bn in a separate legal battle before the same judge after trying to back out of that deal.
Musk, who arrived in a black Tesla and was led into the courtroom via a separate entrance due to safety concerns, completed his testimony in less than three hours. He was followed on the stand by Antonio Gracias, a Tesla board member from 2007 to 2021.
The billionaire testified that he focuses his attention where it is needed most, which in 2017 was Tesla.
“So in times of crisis, allocation changes to where the crisis is,” said Musk.
Musk has a history of combative testimony and he often appears disdainful of lawyers who ask probing questions. In past trials, he has called opposing lawyers “reprehensible”, questioned their happiness and accused them of “extortion”.
Musk was more restrained in Wednesday’s proceedings, although he chafed at probing questions.
At one point, Musk told the plaintiff’s lawyer, “Your question is a complex question that is commonly used to mislead people.”
Musk acknowledged that he was not a lawyer but added “when you’re in enough lawsuits you pick up a few things”.
Musk tweeted this week that he was remaining at Twitter’s San Francisco headquarters around the clock until he fixed that company’s problems, and said on Wednesday he had come on an overnight flight from the social media company.
Tornetta has asked the court to rescind the 2018 package, which his lawyer Greg Varallo said was $20bn larger than the annual gross domestic product (GDP) of the state of Delaware.
The legal team for Musk and the Tesla directors have cast the pay package as a set of audacious goals that worked by driving 10-fold growth in Tesla’s stock value, to more than $600bn from about $50bn.
They have argued the plan was developed by independent board members, advised by outside professionals and with input from large shareholders.
The disputed Tesla package allows Musk to buy 1 percent of Tesla’s stock at a deep discount each time escalating performance and financial targets are met. Otherwise, Musk gets nothing.
Tesla has hit 11 of the 12 targets, according to court papers.
Shareholders generally cannot challenge executive compensation because courts typically defer to the judgement of directors. The Musk case survived a motion to dismiss because it was determined he might be considered a controlling shareholder, which means stricter rules apply.
“There is no case in which a 21.9 percent shareholder who is also the chief executive has received a structured payout plan of this magnitude,” Lawrence Cunningham, a corporate law professor at George Washington University, said of the lack of precedent.