Musk says he was focused on reviving Tesla, defends $56 billion pay

WILMINGTON, Del (Reuters) -Elon Musk said he was completely focused on Tesla in 2017 when the electric car maker was in “crisis,” as he testified in a Delaware court on Wednesday to rebut claims that his $56 billion pay package was based on easy performance targets and approved by a compliant board of directors.

Elon Musk, Chief Executive Officer (CEO) of SpaceX, Tesla and Twitter, arrives to a trial regarding his Tesla pay package at the Delaware Court of Chancery in Wilmington, Delaware, U.S., November 16, 2022. REUTERS/Evelyn Hockstein

Musk told the court in his opening remarks that he thought it was “extremely unlikely” Tesla Inc would succeed in achieving his vision in 2016, requiring his full attention.

Tesla shareholder Richard Tornetta sued Musk and the board in 2018 and hopes to prove that Musk used his dominance over Tesla’s board to dictate terms of the package, which did not require him to work at Tesla full-time.

Musk’s testimony before Chancellor Kathaleen McCormick comes as he is struggling to oversee a chaotic overhaul of Twitter, the social media platform he was forced to buy for $44 billion in a separate legal battle before the same judge after trying to back out of that deal.

“I was entirely focused on the execution of the company,” Musk said when questioned about Tesla by his attorney Evan Chesler, adding that he did not dictate the terms of the pay plan.

Musk, the world’s richest person, described how the automaker was struggling to survive in 2017, when the pay package was developed.

He also said he not would accept a pay plan that required him to punch a clock or commit certain hours to Tesla. “I pretty much work all the time,” he said. “I don’t know what a punch clock would achieve.”

Investors are growing concerned about Musk’s focus on Twitter. On the stand, the billionaire said he focuses his attention where it is needed most, which in 2017 was Tesla.

“So in times of crisis, allocation changes to where the crisis is,” said Musk, who wore a dark suit and tie. He had arrived in a black Tesla and was led into the courtroom via a separate entrance due to safety concerns.

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Musk has a history of combative testimony and often appears disdainful of lawyers who ask probing questions. He has called opposing attorneys “reprehensible,” questioned their happiness and accused them of “extortion.”

Musk appeared more restrained in Wednesday’s proceedings, although he chafed at the probing questions.

At one point, Musk told the plaintiff lawyer, “your question is a complex question that is commonly used to mislead people.”

He acknowledged he wasn’t a lawyer but added “when you’re in enough lawsuits you pick up a few things.”

FIX PROBLEMS

Musk tweeted this week that he was remaining at Twitter’s San Francisco headquarters around the clock until he fixed that company’s problems and said on Wednesday he had come on an overnight flight from the social media company.

Tornetta has asked the court to rescind the 2018 package, which his attorney Greg Varallo said was $20 billion larger than the annual gross domestic product of the state of Delaware.

The legal team for Musk and the Tesla directors have cast the pay package as a set of audacious goals that worked by driving 10-fold growth in Tesla’s stock value, to more than $600 billion from around $50 billion.

They have argued the plan was developed by independent board members, advised by outside professionals and with input from large shareholders.

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, according to court papers.

Shareholders generally cannot challenge executive compensation because courts typically defer to the judgment of directors. The Musk case survived a motion to dismiss because it was determined he might be considered a controlling shareholder, which means stricter rules apply.

“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,” Lawrence Cunningham, a corporate law professor at George Washington University, said of the lack of precedent.

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