Lots of cases — and the associated lawsuits — are flowing through Delaware, and it looks like Tesla CEO and “Chief Twit” at Twitter Elon Musk is about to spend some time in the state.
The richest man in the world took over Twitter in late October after being sued by the company in the Delaware’s Chancery Court to let him go through with the deal. Now, the same court — and the same judge as the Twitter case, Kathaleen St. J. McCormick — will hear another case involving Musk on Nov. 14.
The lawsuit, filed by Tesla shareholder Richard Tornetta, claims that Musk’s 2018 board-approved compensation package was excessive and inconsistent with the board’s obligations to shareholders. Further, the lawsuit alleges that Musk has too much on his plate to pull a compensation package worth more than $50 billion, according to TechCrunch.
The legal documents call it “the largest compensation award in human history,” the outlet noted.
Tesla and Twitter are both integrated in Delaware, like most very large corporations, because of state tax breaks. This is why both cases will be brought before the Chancery Court of the state. It has “unique competenceat the heart of corporate law.
What is the Tesla lawsuit about?
Musk’s compensation (stock options, salaries and bonuses) as Tesla CEO (going back to 2009) was linked to performance, as noted in the 2019 pre-trial advisory of Joseph R. Slights III, who was formerly Vice Chancellor of the Court of Chancery. (McCormick) taken over the case of Lights.)
After Tesla met the goals set out in previous compensation packages, the board created a new one for Musk and voted to approve it in January 2018.
The new package established a set of 12 performance targets and associated stock groups, related to Tesla’s ability to increase its market cap, as well as earnings and earnings. In meeting those goals, “corresponding to each tranche of the Award, options held by Musk, representing 1% of Tesla’s current total outstanding shares, will vest,” Slights wrote.
This means Musk would earn the equivalent of 1% of the company’s total outstanding shares. If he achieves all of those goals, Slights added, the maximum value of the total stock award will be $55.8 billion. The company has made 11 out of 12 so far, according to TechCrunch.
Tornetta sued in 2019 that the package was too big and it didn’t motivate Musk to focus on Tesla versus his other ventures. Musk is, of course, a busy man. He is the publicly traded CEO of Tesla and SpaceX and now Twitter, at least in the meantime.
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Musk’s legal team has said a uniquely powerful CEO deserves a high-impact compensation package.
“The plan designed and approved by the board of directors was not a typical compensation package designed to compensate the ordinary executive for overseeing the day-to-day operations of a mature company,” Musk attorney Evan Chesler wrote. in an application, according to Bloomberg’s law. “That’s because Musk is not the typical CEO.”
Furthermore, the lawsuit alleged that because Musk is friends with board members Ira Ehrenpreis and James Murdoch, he generally exerts too much influence over them — despite abstaining himself and his brother Kimbal from the compensation discussion — and the decision was not. honestly, according to to TechCrunch.
Whether or not there was a conflict of interest is part of why the Slights initially denied Musk’s attempt to fire the suit.
Typically, the court would leave executive compensation to a corporation, and “this court’s sincere respect for board decisions regarding executive compensation is inconsistent with our reflexive suspicion when a board of directors transacts with a controlling shareholder Slights wrote in the opinion of 2019.
Whether Musk was operating as a controlling stakeholder (Musk owns the majority stake in Tesla, but not the majority, leaving it up for debate) will likely come up again when McCormick hears the case, an expert told Bloomberg Law.
Overall, “this has the potential to become a very important matter from an executive pay standpoint,” Jill Fisch, a professor of corporate law at the University of Pennsylvania, told the outlet.
“It won’t get the attention that the Musk-Twitter case got from the general public, but it’s still important,” she said.