Lawyers in Musk pay case seek fee of $6B in Tesla stock
nbcnews.com
nbcnews.com
"Still, the lawyers described the nearly $6 billion in shares as “conservative” under Delaware law, which they said entitles them to 33% of the 'quantifiable conferred benefit.' - “Nevertheless, in an effort to be conservative, Plaintiff’s Counsel does not seek the 33%” warranted by previous cases, they wrote. "
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"The lawyers wrote that, throughout the history of the case, they collectively logged 19,499.95 hours — meaning that a nearly $6 billion award would equal a per-hour rate of $305,550. They argued, though, that the hours worked was of secondary importance, if it was worth considering at all. "
A nice and conservative $300k an hour.
Now they argue that the amount "would be justified given how much value they delivered to Tesla shareholders"! That sounds like a great argument for paying Musk, who delivered 10x the value.
And another hilarious bit: “Delaware seeks to incentivize, not punish, efficient litigation.” Litigation, but not business.
The hypocrisy of the lawyers to expect pay of $300k/hour is breathtaking.
And wasn't the board elected by the shareholders? It seems likely that the shareholders supported Musk so they chose a board that also supported him. What's wrong with that?
(Unless Musk somehow selected the board without shareholder approval, which I agree would be wrong.)
The important part is not the absolute benefit, but the proportion of benefit to cost. Elon's pay package was 12% of total outstanding shares at some point in time; would he/the board have still met his fiduciary responsibilities if the pay package were 15% of total outstanding shares? 20%? 50%? 100%? 200%? Higher?
And what about the other direction? Wouldn't shareholders have benefited even more if they had received the same increase in shareholder price but only giving Musk 11% of outstanding shares? What about 10%? 8%? 5%? 2%? 0%?
More to the point, there's some limit to how many shares could be granted to Elon, as at some point the dilution is too severe even if the share price skyrocketed the same way. And on the other side, there might be a point where the offered compensation is too low, so you may not see a benefit.
The issue was that there was no effort to find the best cost/benefit ratio (or even a good cost/benefit ratio) for the shareholders, and since the deal was assumed to be unfair and the burden of proof was on Elon/Tesla to prove their price was fair, that results in the package being rescinded.
> And wasn't the board elected by the shareholders?
Sure, but that doesn't necessarily mean the board has the shareholders' best interests in mind for every action they take. As an example, the board composition was mostly the same during the SolarCity acquisition as when negotiating the 2018 compensation plan, but the board behaved very differently during the acquisition (e.g., pushing back on Elon's asks), so they were deemed to be sufficiently independent for that transaction.
> What's wrong with that?
It works as long as "supporting Elon" happens to be what works in the shareholders' interest, but there's no reason the two have to be the same thing.
So they were not "Musk puppets". If they had been, they would not have been capable of pushing back at any time.
Why was the deal assumed to be unfair? And how could anyone prove that a deal was fair?
What the board could have done counts for very little, if anything. All that matters is what they did (or in this case, did not) do.
> Why was the deal assumed to be unfair?
That's what Delaware law/precedent requires given the facts of the case. The judge found Musk to be effectively in control of the company for the purposes of the transaction, which made it a conflicted-controller transaction. Under Delaware law, those types of transaction are subject to the highest level of judicial scrutiny - the "entire fairness" standard - where both the process (how the deal was made) and the price (the terms of the deal) need to be proven fair.
By default, the burden of proof rests on the defendants (Musk/Tesla, in this case), but Delaware law allows the burden of proof to be shifted to the plaintiffs by using a well-functioning committee of independent directors and/or through a fully-informed stockholder vote (IIRC the opinion says either one suffices, but I've seen commentary that seems to state both are needed, so I'm not sure what the exact conditions are).
The judge found that the compensation committee was not well-functioning and that the directors on it were not independent. In addition, she ruled that the shareholder vote was not fully informed due to material deficiencies in the proxy Tesla sent out. As a result, Musk/Tesla failed to meet the requirements to shift the burden of proof. If they had succeeded in shifting the burden of proof, the deal would be assumed to be fair, and the plaintiff would need to show the deal was unfair.
> And how could anyone prove that a deal was fair?
They'd need to show the process and the price were fair. The former includes looking at the initiation, timing, structure, negotiation, and approval of the process, and while the latter does seem vague in comparison it seems to involve showing the court that the price paid falls within a range of fairness.
In fact, Tesla faced the same challenge of proving entire fairness during the SolarCity acquisition and succeeded. They showed that the price they paid was fair (enough), and despite flaws in the process there were enough elements of fairness in the process to avoid dooming the deal.
I believe the current state of the law is that an independent board decision is usually good enough but can still be attacked while a fully informed shareholder vote cleanses all deals regardless of the impropriety.
They are just robbing him
I've yet to see any actual shareholders say they had an issue with him being paid.
If this judge actually gives them 5 billion its going to nuke the future of Delaware as a business state.
What's happening is unprecedented.
It's not worth the risk. Some will stay but many will migrate out
Musk was already an investor with billions of dollars of incentive to do a good job. It was nothing short of fraud to pack the board with friends and relatives and push through a CEO pay package orders of magnitude greater than the already exorbitant US CEO pay. He is greedy, selfish and criminally insane.
I’m not even sure he works at Tesla anymore. Seems more preoccupied with Twitter and rockets and robots and drilling holes and how he didn’t get his share of the AI revolution. He’s a gambling addict - if you sent 1000 gamblers into a casino with 1000 dollars, a dozen would come out with 1 million. One of them would be name Elon. He’s a lucky psychopath, not a misunderstood genius.
> if you sent 1000 gamblers into a casino with 1000 dollars, a dozen would come out with 1 million.
No. The odds of winning a 1000x return in a casino would be less than 1 in 1000, and you'd be lucky if one of them came out with a million (as the others lost it all).
He also keeps messing with the residual value of the cars people bought and I, for one, love my Model Y but would never buy anything from Musk again. That said, I would also not buy any EV that connects to any other charging network, so Tesla the company can build great stuff but he keeps the company off-kilter.
If you ask for a CEO who would keep the company on a steady course, you'll get a CEO who doesn't make those bets.
Actually it might be time now for Tesla to switch to that CEO. It's hard to imagine another 1000x bet paying off for Tesla from its current value.
But that wasn't the case in 2018 when this pay package was decided, when Tesla was valued at only $50B (and that value was already factoring in high growth expectations).
Elon is longer the person who set Tesla on the 3/Y path. And Tesla couldn't possibly have delivered less innovation (vs operations) since the 3/Y.
Personally, when I see how hard most of the other manufacturers have struggled to meet product/EV outcomes Tesla set 5+ years ago.. I think of the lost potential of Tesla considering they haven't kept pace with their own standard since Elon lost the plot. Maybe the $25K car-to-come is up to par, but not if the Cybertruck is to go by.
25k is coming as they said. Tesla has no debt and a ton of cash and no real competition in thier segment.
None od this was true when musk was offered this package. Idk what younwould be upset about. The stock is up 10x since he was offered this package.
Don't believe what Elon says. Only what he/they delivers.
Also, per the market: 5 year +850%, 1 year +6%. Market maturity, or Elon immaturity?
I was of the impression that the case was about contingency payout. If Tesla stock appreciates by 600% in the next few years, then Tesla has to pay Elon Musk a fantastic amount. 600% if kind of fantastic too. If the lawyers are asking for conditional reimbursement that can be that large in the same fantastic circumstances then I don't see what's wrong about it.