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According to one of the shareholder's attorneys, the acquisition for Twitter Inc (TWTR.N) and its potential to divert Musk's attention away from Tesla will be a key aspect of the trial in October.
According to the complaint, Musk drafted the 10-year deal and Tesla's board approved it in 2018 without forcing the celebrity CEO to devote his time to the electric vehicle company.
"Take a look at the majority of CEO contracts. 'You're going to be a full-time CEO and commit substantially full time to the company's operations and affairs,' it states in the opening sentence. That is typical procedure "According to Greg Varallo of Bernstein Litowitz Berger & Grossmann, the law firm leading the opposition to the compensation settlement.
Requests for comment from Musk and Tesla were not returned. The defendants claimed in court documents that the plan was lawfully created by independent directors, authorised by stockholders, and had resulted in exceptional profits for investors.
Tesla's stock has dropped more than 20% after Musk said on April 4 that he had purchased a 9% stake in Twitter, raising worries that he was being distracted from the electric car maker's supply chain issues.
Aside from Twitter, the multitasking entrepreneur is also the chairman of SpaceX, the creator of The Boring Company, and the owner of Neuralink, a brain-chip firm. One of his declared goals is to colonise Mars.
As the firm accomplishes growing financial targets, the 2018 Tesla compensation package offers stock options, which the company claims would incentivise his ongoing leadership. The plan would be worth at least $56 billion if Tesla reached all of its "stretch" goals, however the plan's value will climb if Tesla's stock rises. find out more
According to Amit Batish of research company Equilar, Musk's stock vested under the plan is currently valued roughly $75 billion. He calculated that this is nearly 35 times the total value of the top 100 CEO pay packages from the previous year.
Shareholder Richard Tornetta filed a case in Delaware's Court of Chancery, alleging that the package was unnecessary because Musk controlled 22 percent of Tesla at the time, providing him sufficient of motivation to make the firm a success.
Tornetta wants the scheme cancelled, including the stock options that have already been issued.
Musk is using Tesla stock as security for loans to purchase Twitter.
In court documents, Musk and Tesla's board of directors contended that the pay package accomplished what it set out to do: align Musk's interests with those of shareholders and produce value.
"Tesla's valuation has soared by more than 1,800 percent since it was deployed, from around $53 billion to over $1 trillion," according to the document. They pointed out that, despite the significant increase in value, Musk has not yet achieved all of his goals.
In March 2018, shareholders accepted the package, which was described as "difficult" in securities filings.
Shareholders should have been advised before the vote that management knew several milestones were likely to be met, according to the lawsuit, which was called a materially deceptive omission.
In court papers, Tesla argued that the internal projections were "stretch" goals.
According to a court filing, Tesla's former chief financial officer, Deepak Ahuja, testified in a deposition in the case that "nothing Elon touches or does is not bold, super stretched, and aggressive."
Despite the astronomical pay package, the trial will most likely focus on the directors' reasoning in negotiating the deal and what the board told shareholders before the vote.
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