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Tesla, opponents of Musk’s pay package clash over resolving compensation lawsuit

Opponents of electric car maker Tesla Inc. and CEO Elon Musk’s $56 billion compensation package clashed on Friday to resolve a legal dispute over the package and the billions of dollars in legal costs that depend on its outcome.

The company said in a court filing that a Delaware judge who invalidated Musk’s compensation package in January should reverse his earlier ruling, acknowledging that shareholders voted this month to reinstate the package.

Shareholders voted June 13 to reinstate the compensation plan originally approved in 2018, but the plan remains on hold pending the resolution of the litigation.

Lawyers for Richard Tornetta, the shareholder who filed a lawsuit seeking to void Musk’s compensation plan, argued that Tesla shareholders’ vote to reinstate the plan has no legal effect and that Tesla must appeal to the Delaware Supreme Court to overturn the January ruling.

Tesla shareholders vote to reinstate Musk’s $56 billion compensation package

Elon Musk Tesla

The fate of Tesla CEO Elon Musk’s compensation plan is in court after shareholders voted to reinstate the plan that a judge invalidated in January. (Photo: Mark Piasecki/Getty Images/Getty Images)

They also argued that before Tesla can appeal, the Delaware judge who ruled, Chief Justice Katherine McCormick, should determine how much legal costs Tesla would have to pay if it wins the case.

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TSLA Tesla Inc. 183.01 +1.44 +0.79%

Tornetta’s lawyers had previously sought 29 million Tesla shares, or more than $5 billion, in legal fees. They said Friday that Tesla could pay at least $1.1 billion, based on a Delaware Court of Chancery precedent, but called the amount “unreasonably low.”

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Tesla CEO Elon Musk

Musk’s compensation plan was contingent on Tesla hitting certain performance-based targets. (Photo by Etienne Laurent/AFP via Getty Images)

Tesla said the judge should set aside a fight over legal costs and instead decide the impact of a shareholder vote that could significantly reduce legal expenses. Tesla also signaled it plans to file a motion to overturn a January ruling that would have given it a win in the case.

The company argued that because the compensation package was reviewed by independent directors and reapproved by shareholders, it resolved the judge’s ruling that Musk controlled negotiations due to his personal relationships with some of the directors and that the board failed to properly disclose information about the compensation plan.

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Tesla Car Showroom

Opponents of Musk’s compensation plan argue that the shareholder vote has no legal meaning. (Photo: Joe Raedl/Getty Images/Getty Images)

Tornetta’s legal team rejected this approach, arguing that the board’s process for proposing the ratification vote was flawed and that the shareholder vote was forced by Musk’s threats that he could shift his focus away from Tesla to artificial intelligence (AI) investments without more control.

Tesla said Musk’s compensation package, which consisted of performance-based goals that triggered the granting of stock options that must be held for five years before being exercised, was valued at $56 billion when the last milestone was reached.

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The value of the package will fluctuate based on Tesla’s share price and is worth about $48 billion based on Friday’s share price of $182.19.

Reuters contributed to this report.

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