Investor's Corner

Tesla director and former executive defend Musk’s compensation plan in court

Tesla CEO Elon Musk wears a Plaid Mode jacket at the company's Model S Plaid Delivery Event on June 10th, 2021. (Credit: Tesla)

During the first day of a week-long trial in a Delaware court, a Tesla director and a former executive testified in favor of Elon Musk’s high-risk, high-reward compensation package. The executives’ testimonies were a response to a shareholder’s allegations that Musk had dictated the terms of his compensation plan so that he could easily meet its targets. 

Among those who testified on Monday was Ira Ehrenpreis, a Tesla director since 2007. Ehrenpreis was asked to explain why the Tesla Board did not demand that Musk dedicate himself to Tesla full-time. Musk currently leads several companies, most notably Tesla and SpaceX, and more recently, Twitter. He also plays a notable part in The Boring Company and Neuralink. 

In his response, Ehrenpreis, who chaired the committee which came up with Musk’s current pay package, explained the Tesla Board’s relationship with the CEO. “We never had the kind of relationship with Elon where he was punching the clock,” he said. Ehrenpreis also clarified that the Tesla Board was focused on Musk achieving targets, not on the hours he spends on the company. 

Apart from Ehrenpreis, Tesla general counsel Todd Maron also testified in court. He was asked about an email from the Tesla CEO, which reportedly revealed that Musk was planning on putting “money towards Mars” if he successfully achieves the targets. Maron noted that he believes it was “pretty irrelevant” what Musk would do with his earnings if he was successful. 

Other Tesla executives are poised to take the stand in the case. Tesla Chair Robyn Denholm and former CFO Deepak Ahuja are expected to testify on Tuesday. Elon Musk himself is scheduled to testify on Wednesday. 

Chancellor Kathaleen McCormick of Delaware’s Court of Chancery will be deciding the case. McCormick is a familiar face for Tesla’s legal team, as she was also the person who oversaw Musk’s legal dispute against social media company Twitter. A decision is expected to be reached in around three months. 

While Musk’s compensation plan today may seem overly-generous, it is important to note that when it was proposed and approved in 2018, Tesla was only a $59 billion company that’s in the middle of a difficult Model 3 ramp. It was also a high-risk, high-reward system, as Musk was stipulated to receive zero compensation if he did not lead Tesla toward an explosive growth phase. 

When it was approved, Tesla skeptics largely laughed off the compensation plan, as the idea of the electric vehicle maker being a $650 billion company by 2028 seemed downright ridiculous. To date, Musk has achieved 11 out of 12 targets that were stipulated in his performance award. Tesla, for its part, remains a $600 billion company despite the presence of a notable Twitter overhang. 

For context, below are the details of Musk’s current performance award.

Elon Musk’s 10-year Performance Award. (Credit: Tesla)

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Tesla director and former executive defend Musk’s compensation plan in court
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