Pension fund shareholder of Tesla sued Elon Musk and company directors for an outrageous pay
A Pension fund shareholder of Tesla sued Elon Musk and company directors in Delaware’s Chancery Court to seek repayment of what it said were years of “outrageous” board stock awards that cost the company hundreds of millions of dollars. The stock option benefits valued at an average $8.7 million in 2018 alone more than 29 times higher than the average for S&P 500 index company boards. The fund also sued two past directors.
Demonstrably unmoored from independent stockholder checks on their self-compensation, they have granted themselves millions in excessive compensation and are poised to continue this unrelenting avarice into the indefinite future
the pension fund said in the complaint
It looks this model hasn’t gone down well with a US-based pension fund and Musk, along with the high-profile board of directors at Tesla, has been sued. According to a report by Bloomberg, the pension fund has alleged that Tesla’s board and Musk have siphoned hundreds of millions of dollars to earn extremely high compensation packages.
A report by CNBC in May revealed that Musk earned a payout of $775 million, the first of such payouts which were worth a massive $775 million. The report which cited Tesla’s filing with the Securities and Exchange Commission (SEC) confirmed that Musk’s first tranche of incentive payout was handed out. The tranche included about 1.7 million Tesla shares that based on the company’s current market value are worth $775 million. Musk got the $775 million payouts as Tesla’s market capitalization has been at $100 billion on “a 30-day and six-month trailing average,”
The pension fund claims Tesla repeatedly failed in recent years to secure approval from independent and unaffiliated stockholders for board pay and benefits. Instead, Musk’s 20% to 30% ownership of Tesla stock over the years tipped the balance in his favor so that with family and friends on Tesla’s boards, Musk “dominates and exercises control” over Tesla and supporting directors receive allegedly unfair and lavish compensation.
Allowing Musk to personally serve as the board’s D&O insurer brings the entire board under the yoke. Any offer to compromise an action to recover for a breach of the directors’ fiduciary duties, including this litigation, is now wholly determined by Musk’s personal whim, and not an independent insurer
the suit said.
According to Law360 blog, Under Delaware’s corporation laws, the derivative complaint involves claims and potential recoveries that are the property of the company itself, rather than those who filed the suit. But the pension fund claims Tesla’s board was too conflicted to evaluate the claims, setting up an exception based on claims that demand for board action would have been futile.
However, Musk does not hold a majority of Tesla’s stock, but in a separate case, Slights determined that Musk’s sway over Tesla made him in effect a controller from a legal standpoint. As a controller, the board is subject to a higher standard of legal oversight for decisions it makes regarding its relationship with Musk. In the end, The judge did dismiss Tornetta’s claim that the package amounted to a waste of corporate assets.
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