WILMINGTON, Del, Nov 14 (Reuters) - A Tesla Inc
director and a former executive took the stand on Monday and
defended Elon Musk's $56 billion pay package against a
shareholder's claims that the entrepreneur dictated terms of the
deal to finance his dream of traveling to Mars.
Tesla shareholder Richard Tornetta hopes to prove that Musk
used his dominance over the electric vehicle maker's board to
craft the 2018 package and then duped investors into approving
The first day of a week-long trial in Wilmington, Delaware,
featured testimony from Ira Ehrenpreis, a Tesla director since
2007, who was pressed to explain why the board did not demand
that Musk dedicate himself to the company full-time.
"We never had the kind of relationship with Elon where he
was punching the clock," said Ehrenpreis, who chaired the
committee that developed the pay package.
Musk, who is also CEO of rocket company SpaceX and founded
tunneling venture The Boring Co, is scheduled to testify on
A video clip was played from Musk's 2021 deposition in which
he was asked if the board demanded he dedicate a certain amount
of time to Tesla.
"No, that would have been silly," Musk responded. Ehrenpreis
said Musk and the board were focused on achieving targets, not
time spent at Tesla.
Former Tesla general counsel Todd Maron also took the
witness stand and was asked about an email Musk sent him while
the pay package was being developed that mentioned putting
"money toward Mars if I am successful."
Maron said he was ambivalent about what Musk did with his
money if he met the targets. "I thought it was pretty
Tesla's shareholders have become concerned that Musk is
distracted by Twitter, which he bought for $44 billion last
Musk, speaking virtually to a business conference on the
sidelines of the G20 summit in Bali, Indonesia, on Monday said
he had too much on his plate at the moment.
He later tweeted that he had been at Twitter's San Francisco
headquarters all night. "Will be working & sleeping here until
org is fixed," he tweeted.
Tornetta has asked the court to rescind the pay package,
which Tornetta's attorney Greg Varallo said was $20 billion
larger than the annual gross domestic product of the state of
Musk and Tesla's directors, who are also defendants, have
denied Tornetta's allegations, arguing that the pay package
ensured the entrepreneur would guide Tesla through a critical
period, which helped drive the stock tenfold higher.
The case will be decided by Chancellor Kathaleen McCormick
of Delaware's Court of Chancery, who also oversaw the legal
dispute between Twitter Inc and Musk.
Tesla Chair Robyn Denholm and former Chief Financial Officer
Deepak Ahuja are scheduled to testify on Tuesday.
WIDE LATITUDE TO SET PAY
Legal experts said Musk is in a better legal position in the
pay case than he was in Twitter's lawsuit, which prevented him
from walking away from the takeover.
Boards have wide latitude to set executive compensation,
legal experts say.
However, directors must meet more stringent legal tests if
the pay involves a controlling shareholder. Part of this trial
is likely to focus on whether that description fits Musk.
While he owned 21.9% of Tesla in 2018, plaintiffs are likely
to cite what is seen as his domineering personality and ties to
"There is no case in which a 21.9% shareholder who is also
the chief executive has received a structured payout plan of
this magnitude," said Lawrence Cunningham, a corporate law
professor at George Washington University.
A pay battle between The Walt Disney Co and a
shareholder shows how much deference Delaware courts give boards
in setting compensation.
A Disney shareholder sued in 1997 over a $130 million
severance payment to former president Michael Ovitz, who was
with the company less than two years. The shareholder lost at
trial in 2005, and the Delaware Supreme Court upheld the ruling
However, the Disney case involved the firing of an executive
who was accused of underperforming. Tesla has flourished under
The disputed Tesla package allows Musk to buy 1% of Tesla's
stock at a deep discount each time escalating performance and
financial targets are met. Otherwise, Musk gets nothing.
Tesla has hit 11 of the 12 targets as its value ballooned
briefly to more than $1 trillion from $50 billion, according to
A decision will likely take around three months after the
trial and could be appealed to the Delaware Supreme Court.
(Reporting by Tom Hals in Wilmington, Delaware; additional
reporting by Hyunjoo Jin in San Francisco and Jody Godoy in New
York; Editing by Noeleen Walder and Bill Berkrot)