Robyn Denholm (Getty Photos)
WILMINGTON, Del. — The pinnacle of Tesla’s board of administrators testified Tuesday in a shareholder lawsuit difficult a 2018 compensation plan for CEO Elon Musk probably value greater than $55 billion that she was much less involved about how a lot time Musk would decide to the corporate than within the outcomes he might deliver.
“We didn’t speak about time,” Robyn Denholm mentioned when requested about her discussions with Musk concerning the compensation plan, which didn’t embrace any requirement on how a lot time he would dedicate to the corporate, versus his different enterprise ventures.
“He was targeted on reaching outcomes, not on any quantum of time he would want to spend,” Denholm mentioned. She added that she doesn’t know what number of hours Musk — who final month took over Twitter after paying $44 billion for the social media platform — devotes to Tesla.
“I’m not involved about time,” added Denholm, who was a member of the compensation committee on the electrical automotive and photo voltaic panel maker that developed the plan. “I do know durations of time the place he’s sleeping on the manufacturing facility ground.”
The lawsuit alleges that the performance-based inventory possibility grant was negotiated by the compensation committee and permitted by Tesla board members who had conflicts curiosity on account of private {and professional} ties to Musk, together with investments in his firms. It additionally alleges the shareholder vote approving the compensation plan was based mostly on a deceptive proxy assertion.
The lawsuit alleges that the proxy wrongly described members of the compensation committee as “unbiased,” and characterised the entire milestones that triggered vesting within the inventory choices as “stretch” objectives meant to be troublesome to attain, though inside projections indicated that three operational milestones had been prone to be achieved inside 18 months of the stockholder vote.
Attorneys for the defendants have famous that two institutional proxy advising companies that urged shareholders to reject the plan nonetheless famous that it might require “important and maybe historic achievements” and require progress that “seem stretching by any benchmark.”
“I assumed they, on the time, had been fairly audacious,” Denholm mentioned of the milestones.
The plan referred to as for Musk to reap billions if Tesla hit sure market capitalization and operational milestones. For every incidence of concurrently assembly a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was permitted, would get inventory equal to 1% of excellent shares on the time of the grant. His curiosity within the firm would develop to about 28% if the corporate’s market capitalization grew by $600 billion.
Every milestone within the plan contains rising Tesla’s market capitalization by $50 billion and assembly aggressive income and pretax revenue progress targets. Musk would obtain the total good thing about the pay plan, $55.8 billion, provided that Tesla hit a market capitalization of $650 billion and unprecedented income and earnings inside a decade.
Up to now, Tesla has achieved all 12 of the market capitalization milestones and 11 operational milestones, ensuing within the vesting of 11 of the grant’s 12 tranches and offering Musk over $52.4 billion in inventory possibility features, in response to the lawsuit. Because the grant was awarded, Tesla’s market capitalization has elevated from $59 billion to greater than $613 billion now, having briefly hit $1 trillion early this yr. Musk has offered Tesla inventory to finance the Twitter buy, including downward strain on the shares.
Shares of Tesla and different automakers have been battered this yr, however the Austin, Texas, firm earned $5.5 billion in 2021, blowing away the earlier yr’s revenue of $721 million. It additionally produced a file 936,000 automobiles, almost double automobile manufacturing in 2020.
Attorneys for the plaintiff have instructed that incentivizing Musk to stay at Tesla’s helm by providing an enormous compensation package deal was pointless, as a result of he’s by no means instructed that he would possibly depart. They’ve additionally instructed that Musk’s true motive in negotiating the package deal was to fund his dream to colonize Mars.
Denholm mentioned the first concern was not how Musk would possibly spend the proceeds of his possibility grants, however guaranteeing that he was motivated and dedicated to Tesla’s success.
“Fairly actually, I don’t understand how a lot it prices to do any interplanetary journey,” she mentioned.
In a November 2017 e-mail to former Tesla Normal Counsel Todd Maron, Musk expressed optimism that the compensation package deal could be seen in a good mild.
“On condition that this may all go to causes that at the least aspirationally maximize the likelihood of a superb future for humanity, plus all Tesla shareholders will likely be tremendous comfortable, I feel this will likely be obtained nicely,” he wrote, including that “it ought to come throughout as an extremely bullish view of the longer term.”
