© Reuters. FILE PHOTO: Elon Musk, CEO (CEO) of SpaceX, Tesla and Twitter, arrives for a trial on his Tesla propulsion package at the Delaware Chancery Courthouse in Wilmington, Delaware, US November 16, 2022. REUTERS/Evelyn Hochstein/File Image
by Tom Hales
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:) Inc is justified by the company’s explosive growth or Undermined by a defective process.
Musk and the Tesla managers named as defendants have repeatedly testified that the package achieved what it set out to do – it generated a 10-fold growth in the company’s share price, enriching investors and Musk.
“We thought that if we could make this happen, 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 in Chancery on Wednesday. “It was a great deal for shareholders.”
The trial seeks to resolve shareholder Richard Tornetta’s allegations that the 2018 salary package was dictated by Musk, the richest person in the world, to subject directors and approved by a vote of shareholders misled by Tesla.
The trial wrapped up on Friday, as Musk struggles to oversee a messy fix for him Twitter Inc (NYSE:), which he was forced to buy for $44 billion in a separate legal battle before the same judge, counsel Kathleen McCormick (NYSE:).
“My sense is that even though it goes to trial, the verdict will be in favor of 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, managers said the pay package was meant to ensure Musk guides the electric-car maker through a critical point when he could focus on his rocket company SpaceX or The Boring Co. tunneling project.
Musk told the board he wanted a huge package to fund his dream of traveling to Mars, or, as he testified, to make “life multiplanetary in order to ensure the long-term survival of consciousness.”
Musk described his efforts to drive the company from the brink of failure in 2017 to exponential growth. On Wednesday, Musk testified that “the amount of pain cannot be expressed in words.”
Gracias recalls that Musk celebrated his birthday in the factory conference room with a grocery store cake. “This was all brutal 24/7,” he told the court.
The package allows Musk to buy 1% of Tesla stock at a deep discount each time ramping up performance and financial goals are met. Otherwise, Musk gets nothing.
Tesla hit 11 of the 12 targets as its valuation briefly ballooned to more than $1 trillion from $50 billion.
Tornetta wants to cancel the plan and return the inventory granted under the plan to Tesla.
Much of the experiment focused on the information provided to shareholders before the plan was approved. Tornetta’s lawyers tried to show Tesla’s concealment of potentially achieving three package targets quickly.
The plaintiff portrayed the directors as personal friends or business associates of Musk, who was the link to their wealth.
The directors have tried to show that they can stand up to Musk’s demands. But the evidence for the expropriation was limited to the best way to calculate stock grants and the requirement that Musk hold his stock for five years.
Todd Maron testified about the pay talks in 2017 when he was general counsel: “It wasn’t a steady, stressful issue.”
Talley said Musk is a unique CEO and his salary reflects that.
“He’s like a Labrador retriever. He sees a ball and runs after it. You could almost argue they didn’t pay him enough because he ran off behind Twitter.”