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Musk's pay trial asks if Tesla's growth justifies $56 billion compensation

Stock Markets Nov 18, 2022 06:16PM ET
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2/2 © Reuters. FILE PHOTO: Elon Musk, Chief Executive Officer (CEO) of SpaceX, Tesla and Twitter, arrives for a trial about his Tesla pay package at the Delaware Court of Chancery in Wilmington, Delaware, U.S., November 16, 2022. REUTERS/Evelyn Hockstein/File Photo 2/2
 
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By Tom Hals

WILMINGTON, Del. (Reuters) - After five days of testimony, including three hours from Elon Musk, a Delaware judge will now decide whether Musk's $56 billion pay package from Tesla (NASDAQ:TSLA) Inc was justified by the company's explosive growth or undermined by a flawed process.

Musk and the Tesla directors named as defendants repeatedly testified that the package achieved what it set out to do -- deliver 10-fold growth in the company's stock price, enriching investors and Musk.

"We thought if we could pull this off, if this plan was executed, Tesla would be one of the most valuable technology companies," Antonio Gracias, a Tesla board member from 2007 to 2021, told the Delaware Court of Chancery on Wednesday. "It was a great deal for the shareholders."

The trial seeks to resolve claims by shareholder Richard Tornetta that the 2018 pay package was dictated by Musk, the world's richest person, to subservient directors and approved by a vote of shareholders who were misled by Tesla.

The trial wrapped up on Friday, as Musk struggles to oversee a chaotic overhaul of Twitter Inc (NYSE:TWTR), which he was forced to buy for $44 billion in a separate legal battle before the same judge, Chancellor Kathaleen McCormick (NYSE:MKC).

"My sense is that even though it went all the way to trial, a ruling is going to favor Mr. Musk," said Eric Talley, a professor at Columbia Law School who has followed the case.

It will be months before McCormick rules and her decision can be appealed to the Delaware Supreme Court.

During the week-long trial, directors said the pay package was meant to ensure Musk guided the electric vehicle maker through a critical phase when he could have focused on his rocket company SpaceX or tunneling venture The Boring Co.

Musk told the board he wanted a huge package to finance his dream of travel to Mars, or as he testified, to make "life multi-planetary in order to ensure the long-term survival of consciousness."

Musk described his efforts to push the company from the brink of failure in 2017 to exponential growth. "The amount of pain, no words can express," Musk testified on Wednesday.

Gracias recalled that Musk celebrated his birthday in a factory conference room with a grocery store cake. "This was all hands on deck, 24/7, brutal," he told the court.

The package allows Musk to buy 1% 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 as its value ballooned briefly to more than $1 trillion from $50 billion.

Tornetta wants the plan rescinded and the stock granted under the plan returned to Tesla.

Much of the trial focused on the information provided to shareholders before they approved the plan. Tornetta's lawyers tried to show Tesla concealed that three targets of the package were likely to be quickly met.

The plaintiff portrayed the directors as personal friends or business partners of Musk, who was the link to their wealth.

The directors tried to show they could hold the line against Musk's demands. But evidence of extracting concessions was limited to the best method for accounting for the stock grants and a requirement that Musk had to hold his stock for five years.

"It wasn't a knock-down, drag-out affair," Todd Maron testified about the pay talks in 2017 when he was general counsel.

Talley said Musk is a unique CEO and his pay reflects 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."

Musk's pay trial asks if Tesla's growth justifies $56 billion compensation
 

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Comments (3)
VL Carta
VL Carta Nov 19, 2022 5:14AM ET
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Tesla pumped like it did thanks to Musk. The question is, should it have pumped like it did or is this nothing more than a legalised pump and dump pyramid scheme? How do Musk's profits compare with the company's profits? The company is selling FSD that is not FSD, much like selling calling cards that do not work as calling cards...
Picaso Fish
Picaso_Fish Nov 19, 2022 5:14AM ET
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i hate that phrase pump and dump because it literally is why 99% of firms go public. You get the stock up, you sell the stock and you bring in an new bunch of bozos to run your company. Even Gates did it to balmer etc.... doesn't matter if balmer was an long time employee or not.
John Laurens
John Laurens Nov 18, 2022 10:03PM ET
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A deal's a deal... unless you're a fascist little dem snowflake.
Jay Jay
Jay Jay Nov 18, 2022 10:03PM ET
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What an idiot, do even know what fascist means?
Don Getty
Don Getty Nov 18, 2022 8:41PM ET
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Talley said he's a labrador retriever - maybe they should hire a dog for twitter then because its apparent the genius isn't getting it right - lol
Majahonda Sikari
Majahonda Sikari Nov 18, 2022 8:41PM ET
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you are judging based on his 6 weeks action while company was not profitable for more than a decade? lol.
Victor Cuello
Victor Cuello Nov 18, 2022 8:41PM ET
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Majahonda Sikari wait, don’t say anything. I want to hear what the nobody in the comments section telling the world’s most successful entrepreneur how to run a business. HAHAHAHA
 
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