Tesla and Musk are getting sued over CEO’s high-risk, high-reward payment plan

The Model Y unveiling event. (Credit: Teslarati)

Tesla CEO Elon Musk’s high-risk, high-reward pay package from 2018 has attracted a lawsuit from a TSLA shareholder, who argued that the executive’s compensation plan is excessive. Musk’s 2018 pay package was worth about $2.6 billion when it was approved by TSLA shareholders in early 2018. 

Tesla shareholder Richard J. Tornetta filed his lawsuit against Musk and the Tesla board after the CEO’s compensation plan was cleared. According to Tornetta, Musk’s pay package was not only excessive, its authorization by the Tesla board also amounted to a breach of the group’s fiduciary duty. The shareholder is seeking to invalidate the options grant from Musk’s plan, which has been responsible for a good portion of the CEO’s rising net worth

When Musk’s 2018 performance award was proposed by Tesla, the company made it a point that the 10-year payment plan would only net the CEO anything if ambitious goals were achieved. The plan, which is comprised of 12 tranches, requires several breakthroughs in Tesla’s operations and TSLA stock. Musk will only get rewards if he meets milestones such as $50 billion additions to Tesla’s market cap and other pertinent operational breakthroughs. If none of the target milestones were not met, Musk would not receive a single cent. 

Tornetta, however, argued in his case that Tesla board members had undisclosed conflicts. He also claimed that Musk crafted his own payment plan with some personal assistance of his former divorce lawyer Todd Maron, who also happened to be Tesla’s general counsel at the time. The shareholder claimed that Tesla’s board did not disclose all the information it should have to other TSLA investors before a vote on Musk’s 10-year plan was held. 

Lawyers for the Tesla CEO had requested the court for a summary judgment and sought to have Tornetta’s case dismissed. However, in a letter on February 24, court chancellor Kathleen St. J. McCormick stated that the case would be going to trial. 

“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. This case is going to trial,” McCormick noted. 

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Tesla and Musk are getting sued over CEO’s high-risk, high-reward payment plan
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