Musk won pay package with shareholders’ vote, Tesla argues in court filing

Tesla is arguing in a court filing that CEO Elon Musk won the legal battle over his $56 billion pay package because shareholders voted to reapprove the compensation after a Delaware judge voided the compensation plan earlier this year.

The filing, which was made public Thursday, comes about two weeks after Tesla shareholders voted to approve Musk’s compensation plan, which was originally approved in 2018.

Chancellor Kathaleen McCormick of Delaware’s Court of Chancery invalidated the pay plan in January after finding that Musk’s close relationships with some board members influenced negotiations and that the company failed to adequately explain to shareholders that Tesla was on track to hit many of the plan’s performance-based targets.

Tesla’s filing argues that the judge should issue a final order that finds for the defendants. The company has also sought to lower the amount of legal fees that the attorneys for the shareholder who brought the lawsuit will receive to as low as $13.6 million.

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The attorneys for shareholder Richard Tornetta, who sued to invalidate the pay package, previously asked for 29 million shares of Tesla stock – an amount worth over $5 billion – as the legal fee.

In a filing on Friday, they said Tesla could pay them $1.1 billion as an alternative, which they said would be based on precedent in the Delaware Court of Chancery, although they characterized that amount as “unfairly low.”

The judge on Thursday ordered the two sides to begin preparing briefs outlining their views on the impact of the shareholder vote on the case. She also asked them to agree on a date in late July or early August for oral arguments on the issue.

TESLA SHAREHOLDERS VOTE TO REINSTATE MUSK’S $56B PAY PACKAGE

Tesla’s stock has slumped this year amid weak consumer demand for electric vehicles. (Joe Raedle/Getty Images/File)

McCormick will hear oral arguments regarding the legal fee on July 8 and may take a few weeks before issuing a ruling on the matter.

Even if McCormick doesn’t reverse her ruling that voided the pay package in January, she may recognize that the shareholder vote to reinstate it showed there was little value in winning the case because Tesla shareholders want Musk to receive the record-breaking compensation.

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Tesla CEO Elon Musk’s pay package is believed to be the largest among CEOs of publicly traded U.S. companies. (Etienne Laurent/AFP via Getty Images/File)

That would undermine the plaintiff’s attorneys’ fee request, which is based on the value they provided to the company by getting the pay package rescinded.

Musk’s pay package, which consists of performance-based targets that trigger stock option awards that he must hold for a period of five years before exercising, was valued at $56 billion at the time the last target was achieved, according to Tesla. The value of the package fluctuates with changes in Tesla’s stock price, which is down over 20% year-to-date.

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Reuters contributed to this report.