Elon Musk, Tesla Board Members to Defend CEO’s Pay in Court

Attorneys representing current and former Tesla board members have said the package has been successful and was approved through a fair process. They point to the performance of the company, now the world’s most valuable car company with a market capitalization of nearly $620 billion. The company was valued at less than $60 billion when shareholders approved Mr. Musk’s latest pay deal.

The case is slated for a five-day, nonjury trial starting Monday in Wilmington, Del. It is set to be heard by Chancellor

Kathaleen McCormick,

who presided over Twitter Inc.’s lawsuit seeking to compel Mr. Musk to close his $44 billion deal for the social-media company. The transaction closed late last month, before the case went to trial.

The trial this week comes at a busy time for Mr. Musk, who has been putting his imprint on Twitter, laying off around 50% of its staff and making other changes. He also runs rocket company SpaceX.

The Tesla chief executive is expected to take the stand Wednesday in a trial that doesn’t feature opening or closing statements and where judgment typically is rendered by the judge months after the trial concludes. Also slated to testify are several current and former Tesla board members.

Mr. Musk has taken the stand several times in recent years. In 2021, he was also before the Delaware court to defend Tesla’s roughly $2.1 billion takeover of home-solar company SolarCity Corp. in 2016.

A Delaware judge found in favor of Mr. Musk. The judge said that the board’s vetting of the SolarCity deal was meaningful, though the process was imperfect and Mr. Musk was too involved. That decision is being appealed.

In 2019, Mr. Musk was in court defending himself in a defamation case. He prevailed.

A central question in the latest case is whether Mr. Musk controlled the board’s consideration of his pay package. Mr. Musk owned around 22% of Tesla at the time and had close ties to several directors. The plaintiff alleges that Mr. Musk controlled the board, that the board misled shareholders in securing their approval for the stock grant, and that the deal was unnecessary to motivate him.

Photos: How Elon Musk Made His Fortune

The world’s richest man, according to the Bloomberg Billionaires Index, Mr. Musk doesn’t accept a salary from the car maker. Instead, he is compensated in stock options that vest based on Tesla’s valuation and achievement of various operational milestones. The car maker has achieved the targets required for all but one of Mr. Musk’s 12 tranches of options to vest.

“The Board characterized each of the Grant’s milestones as ‘challenging’ and ‘difficult to achieve,’ but omitted that three performance milestones were probable of achievement within one-and-a-half years of the Grant date,” lawyers for the plaintiff said in a court filing.

Attorneys representing the current and former board members said that Mr. Musk didn’t control Tesla’s consideration of his pay package, and that shareholders were fully informed when they signed off on it.

“At a critical juncture for the Company, the Plan motivated Musk to focus his exceptional talents on Tesla when Musk’s future with Tesla was uncertain, especially given his other interests and opportunities,” they said in a court filing.

The plaintiff has a tough path, attorneys unaffiliated with the case said, pointing to the at-risk nature of Mr. Musk’s compensation and Tesla’s performance since the board and shareholders signed off on it.

“I think if you offered this kind of package to the average public company CEO, they’d all say, ‘no way,’” said

Robert Miller,

a corporate law professor at the University of Iowa.

Greg Varallo,

an attorney for the plaintiff, said his side looked forward to presenting its case.

Employee stock options have been at the heart of several controversies at Tesla, where the question of who should benefit from the company’s stratospheric rise has led to tension, The Wall Street Journal recently reported. An issue of broader concern for Mr. Musk has been that some employees were making more at Tesla than he thought their contributions merited.

Write to Rebecca Elliott at [email protected]