Elon Musk left Twitter’s San Francisco headquarters on Wednesday to fly across the country to defend himself against a lawsuit claiming that he didn’t deserve the handsome Tesla payout agreed four years ago.
Tesla shareholder Richard J. Tornetta is suing to void a 2018 pay package, which contributed nearly $56 billion ($50 billion in today’s dollars) to the world’s richest man’s net worth. The lawsuit claims the payout was excessive and approved by a board that wasn’t entirely independent, and that Musk may have had an undue influence on getting awarded the huge payout.
Taking the stand in his compensation trial in the Delaware Court of Chancery on Nov. 16, Musk denied having any part in the decision. “I do not have any understanding of the internal processes by which this compensation structure was obtained,” Musk said.
Tornetta, who owns nine shares of Tesla, claims that text exchanges from 2017 suggest otherwise as they show Musk’s involvement, and he also alleges the deal rested on unfounded proxies. Musk’s compensation was tied to performance targets, such as Tesla’s share price and profitability—he could buy 1% worth of shares at deep discounts every time a target was met. The problem is that the milestones which were painted as stretch goals were in fact internally considered quickly achievable, the lawsuit argues.
Plus, board members have testified that the financial incentive was designed to keep Musk “engaged at Tesla,” but Musk has never taken steps to quit the job despite tweeting about his desire to do so.
The tech magnate, who joked his way through the trial—but, unlike his SolarCity trial in 2021, refrained from calling anyone a “bad human being”—admitted to being friendly and taking family vacations with some board members, but said he upheld his duty to increase Tesla’s market value.
Judge Kathaleen McCormick, who didn’t get her day in court with Musk over the Twitter acquisition, is tasked with deciding whether Musk should be forced to return stock-options awarded under the pay package to Tesla. If that happened, the billionaire would likely lose his spot as the world’s richest person.
Charted: At $50 billion less, Musk would not be the world’s richest
Context: How big is Musk’s pay package?
The payout was a mammoth figure by any standard, but particularly in contrast to what Tornetta’s lawyers claim to be the average Tesla salary at the time, $40,000. In a proxy statement published in 2019, Tesla said the 2018 median salary for employees at the company stood at $56,163—which at the time was reported to be 40,000 times less than what Musk earned.
Tornetta’s lawyers argued the compensation package could rival Delaware’s GDP and exceed the cost of building the World Trade Center, according to CNN.
The package is six times higher than the salaries of America’s top 200 CEOs combined in 2021, according to data from research firm Equilar.
Musk, who owns five companies, says he’s not really CEO of anything
The lawsuit also criticizes the outsize pay because Musk functions at best as a “part-time CEO.” The Tesla self-appointed “technoking” most recently became “chief twit” at Twitter. He’s also the CEO of spacecraft company SpaceX. If that sounds like a plateful already, there’s also the two other companies he leads: underground tunneling firm Boring Company and brain chip firm Neuralink
“At SpaceX it’s really that I’m responsible for the engineering of the rockets and Tesla for the technology in the car that makes it successful. So, CEO is often viewed as somewhat of a business-focused role but in reality, my role is much more that of an engineer developing technology and making sure that we develop breakthrough technologies and that we have a team of incredible engineers who can achieve those goals.”—Elon Musk during trial on Nov. 15
Related stories
😰 Who should Elon Musk be afraid of?