A Delaware judge ruled that a lawsuit by a Tesla Inc (NASDAQ: TSLA) shareholder that alleges CEO Elon Musk’s compensation “unjustly enriches” the charismatic, but controversial company leader, can go forward.
Delaware Court of Chancery Judge Joseph Slights on Friday declined to dismiss the suit by shareholder Richard Tornetta, meaning the company’s board of directors will have to defend Musk’s compensation package.
According to the ruling, the compensation package gives Musk the potential to earn stock options worth upward of $55.8 billion.
The board approved the compensation package in 2018, and it was then overwhelmingly approved by stockholders.
While typically a board would have wide latitude to set its own company’s executive salaries, “this is not a typical case,” Slights said in an order denying a motion to dismiss the case.
Tornetta argues that the compensation committee that negotiated the pay deal was too close to Musk.
Tornetta’s lawyers presented a strong enough claim that “the board-level review was not divorced from Musk’s influence,” the judge said.
The amount doesn’t compare with Musk’s peers, Tornetta alleges.
“According to plaintiff, the ‘fair value estimate of the plan’ is either $2.6 billion or $3.7 billion, dwarfing the compensation of ‘the world’s most successful technology executives,’” Slights wrote.
“While defendants dispute plaintiff’s calculation of the award’s present value, it is reasonably conceivable the present fair value of the award is, as plaintiff alleges, well in excess of that paid to Musk’s peers.”
Slights also said that while Tornetta has shown that it's conceivable the award is unfair to Tesla shareholders, he did so "just barely," but enough that the question can proceed to litigation.
Tesla shares were up 0.32% at $241.40 at the time of publication Monday.
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