A Delaware judge ruled that Tesla’s board of directors must stand trial to defend chief executive Elon Musk’s multibillion dollar pay package.
The electric car company was sued by a shareholder in June 2018 over allegations of corporate waste and unjust enrichment. A judge on Friday denied Tesla’s request to dismiss the lawsuit.
Vice Chancellor Joseph Slights, of the Delaware Court of Chancery, wrote that while Tesla disputed how much the package is worth, “it is reasonably conceivable” that the award is “well in excess of that paid to Musk’s peers.”
Tesla did not immediately comment on Saturday about the decision.
In a February 2018 proxy statement, Tesla’s board wrote that it created this pay package to incentivize Musk to grow Tesla’s market capitalization. “The basic premise is simple — Elon’s compensation will be 100% aligned with the interests of our stockholders,” the board wrote.
In March 2018, Tesla’s shareholders approved Musk’s package with about 73% votes in favor, excluding votes from Musk and his family.
Tesla valued the pay package at $2.6 billion on its 2018 proxy statement. But if Tesla’s market value ballooned, as the payment plan predicted, those stock awards could be worth nearly $56 billion, according to a public filing.
The company, which has yet to post an annual profit according to earnings reports, did not meet any of its performance milestones last year, so Musk received no compensation. Musk tweeted in May that after paying for Tesla expenses, he was actually at “net negative” compensation.
“Elon actually earned $0 in total compensation from Tesla in 2018, and any reporting otherwise is incorrect and misleading,” the company said in a July statement. But if Musk manages to double Tesla’s market cap to $100 billion within ten years, he’ll receive the first portion of his reward.
Slights said these were all factors he would take into consideration at trial. He dismissed the shareholder’s allegation that awarding Musk was equivalent to corporate waste.
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