Elon Musk and Tesla Face Trial Over CEO's Multibillion-Dollar Pay Package From 2018

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  • Tesla and CEO Elon Musk are facing a trial over the company's 2018 CEO pay package.
  • Shareholder Richard J. Tornetta sued Tesla alleging that Musk's pay was excessive and that its authorization by the board amounted to a breach of its fiduciary duty.
  • The trial is scheduled to begin at a Delaware Chancery court on April 18, though the date could change.

Tesla and Elon Musk are facing a trial over the CEO's 2018 pay package, which was worth around $2.5 billion at the time it was granted.

Shareholder Richard J. Tornetta sued Musk and the Tesla board after the package was cleared. The suit claimed it was excessive and said authorization by the electric car company's board of directors amounted to a breach of its fiduciary duty.

Musk's 2018 CEO performance award consisted of 101.3 million stock options (adjusted for the 5-for-1 stock split in 2020) in 12 milestone-based tranches. The plan said Musk would be paid only if he reached those milestones, which focused on Tesla's market value and operations. Otherwise the CEO would receive nothing.

Tesla shares skyrocketed, and payouts to Musk began in 2020, helping make him the world's richest person.

Tornetta seeks to invalidate the option grant from the 2018 plan, which has netted Musk tens of billions of dollars worth of stock at present value.

The shareholder alleged that Tesla board members had undisclosed conflicts and said Musk crafted his own pay plan with personal assistance of his former divorce attorney Todd Maron, who was also Tesla's general counsel. Tornetta claimed that Tesla's board didn't disclose all the information it should have to shareholders before a proxy vote to approve the pay plan.

Maron left the company in late 2018, and Tesla hasn't had a general counsel since December 2019.

Attorneys for Musk had asked the court for a summary judgement and sought to have the case dismissed. But in a letter dated Feb. 24, court chancellor Kathleen St. J. McCormick wrote, "I am skeptical that this litigation can be resolved based on the undisputed facts. So, I am canceling oral argument on the summary judgment motions." She added, "This case is going to trial."

A trial had been scheduled for April 18, in the Delaware chancery court, according to filings first published by legal transparency database PlainSite. That date could change. PlainSite is owned by Aaron Greenspan, who previously disclosed a Tesla short position.

Tesla didn't respond to a request for comment, and attorneys representing Tornetta declined to comment when contacted by CNBC.

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