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Tesla Faces Trial over Huge Pay Deal for CEO Musk
A Delaware judge has ruled that Tesla Inc.’s board must face a trial to justify why it agreed last year to a multi-billion-dollar payout for CEO Elon Musk indexed to the company’s market value.
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A Delaware judge has ruled that Tesla Inc.’s board must face a trial to justify why it agreed last year to a multi-billion-dollar payout for CEO Elon Musk indexed to the company’s market value, Reuters reports.
Tesla initially set the deal’s potential worth at $2.6 billion, Reuters says. But analysts claimed at the time that the value could balloon to $70 billion if the electric carmaker’s market cap zoomed to $650 billion.
Nearly three in four shareholders, excluding Musk, approved the plan. But a lawsuit filed by shareholder Richard Tornetta claims that Tesla’s board breached its fiduciary duty in approving the deal.
The payout involves stock options that vest over 12 steps. Compensation will begin when the company’s market value reaches $100 billion, then expand each time Tesla’s value grows by another $50 billion within a decade. Tesla also would have to hit rising revenue and pretax profit targets.
Tornetta’s lawsuit asserts that the plan was formulated by Tesla’s compensation committee, over which Musk has influence as the company’s largest shareholder. The complaint asks that the payout plan be rescinded and that the board be reconstituted to better protect the company’s investors.
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