WILMINGTON, Del, Nov 14 (Reuters) – A Tesla Inc (TSLA.O) The director spoke out on Monday and defended Elon Musk’s $56 billion salary package against claims by a shareholder that the entrepreneur dictated the terms of the deal to fund his dream of traveling to the planet Mars.
Tesla shareholder Richard Tornetta hopes to prove that Musk used his dominance over the electric vehicle maker’s board to craft the 2018 package and then tricked investors into approving it.
The first day of a week-long trial in Wilmington, Delaware, featured testimony from Ira Ehrenpreis, a Tesla executive since 2007, who was pressed to explain why the board didn’t demand that Musk is dedicated to the company full-time as part of the compensation agreement.
“We never had the kind of relationship with Elon where he clocked in,” said Ehrenpreis, who chaired the committee that crafted the salary package.
Ehrenpreis was asked if Musk told him he wanted the compensation to fund interplanetary travel. “Yes, I knew about that aspiration,” he told the court.
Musk is due to testify on Wednesday.
A video clip was released from Musk’s 2021 deposition in which he was asked if the board had required him to devote some time to Tesla.
“No, that would have been silly,” Musk replied. Ehrenpreis said Musk and the board are focused on achieving goals, not spending time at Tesla.
Tesla shareholders fear Musk could be distracted by Twitter, which he bought for $44 billion last month.
Musk speaking virtually at a business conference on the sidelines of the G20 summit in Bali, Indonesia, said on Monday he had too much to do at the moment.
Later, he tweeted that he had been at Twitter headquarters in San Francisco all night. “I will work and sleep here until the organization is fixed,” he tweeted.
Tornetta asked the court to overturn the salary package, which Tornetta attorney Greg Varallo said was $20 billion more than the state of Delaware’s annual gross domestic product.
Directors of Musk and Tesla, who are also defendants, denied Tornetta’s claims, arguing that the salary package ensured the contractor would guide Tesla through a critical period, which helped boost the stock tenfold.
The case will be decided by Chancellor Kathaleen McCormick of the Delaware Court of Chancery, who also oversaw the legal dispute between Twitter Inc and Musk.
WIDE LATITUDE TO SET THE SALARY
Legal experts said Musk was in a better legal position in the compensation case than he was in the Twitter lawsuit, which prevented him from walking away from the takeover.
Boards of directors have wide latitude to set executive compensation, legal experts say.
However, directors must meet stricter legal criteria if the compensation involves a controlling shareholder. Part of this essay will likely focus on whether this description fits Musk.
While he owned 21.9% of Tesla in 2018, plaintiffs are likely to cite what is seen as his overbearing personality and connections to directors.
“There is no instance in which a 21.9% shareholder who is also the chief executive has received a structured payment plan of this magnitude,” said Lawrence Cunningham, professor of corporate law at George University. Washington.
A paid battle between The Walt Disney Co (DIS.N) and a shareholder shows how much deference Delaware courts give boards of directors in setting compensation.
A Disney shareholder sued in 1997 for $130 million in severance pay for former chairman Michael Ovitz, who had been with the company for less than two years. The shareholder lost at trial in 2005, and the Delaware Supreme Court upheld the decision in 2006.
However, the Disney case involved the firing of an executive accused of non-performance. Tesla thrived under Musk.
The disputed Tesla package allows Musk to buy 1% of Tesla stock at a steep discount whenever performance growth and financial goals are met. Otherwise, Musk gets nothing.
Tesla achieved 11 of 12 goals as its value briefly soared to more than $1 trillion from $50 billion, according to court documents.
A decision will likely take about three months after the trial and could be appealed to the Delaware Supreme Court.
Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Hyunjoo Jin in San Francisco and Jody Godoy in New York; Editing by Noeleen Walder and Bill Berkrot
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