Days after some shareholders said the time has come to oust the CEO of Tesla, Elon Musk faces yet another challenge. A new lawsuit filed in the Delaware Court of Chancery and unsealed on Thursday accuses Musk of swindling the company with his unprecedented $2.6 billion award, recently approved by shareholders, and calls for the removal of the board and the appointment of new directors to better reflect the interests of the shareholders.
“The new E. Musk compensation plan is so large it dwarfs the pay package of every other public company CEO,” the motion submitted by Richard Tornetta states.
Musk’s compensation package, approved by shareholders in March, consists of 20.3 million stock options to be granted in 12 installments if he reaches capitalization goals. The allocation of each part of his compensation depends on whether he succeeds in reaching the set market value and other financial targets within designated timeframes. The plan also stipulates that in order to receive the more than generous compensation in full, Musk will have to remain CEO of the company and chief product officer during that period. In addition, Musk will not be able sell the options for five years after they are exercised.
The company’s market value, which is now stands at $60 billion, will have to reach $650 billion by 2028, which amounts to a roughly 11-fold increase. The plan could either make Musk the richest man alive or leave him without pay if he misses the ambitious targets, as neither salary nor bonuses are envisaged for him.
Tesla responded to the lawsuit, which seeks to acquire class-action status, by reiterating the robust terms with which Musk must comply to be eligible for the award. The company alleges that the Tornetta complaint is a thinly-veiled attempt at a power grab.
The case will be heard by the same court that in March refused to toss out another class action lawsuit against Musk over the SolarCity clean energy company acquisition that the Tesla board approved in 2016. The lawsuit claims that Musk, who served as SolarCity chairman since 2006 and held considerable stock in the company, did not act in the interests of Tesla shareholders but in his own when he pushed for a $2.6 billion deal that allowed him to convert his SolarCity shares into Tesla shares.
Tesla’s legal woes have been piling up as the company is going through a rough patch, failing to produce a quarter of the target of 400,000 Model 3 vehicles and accumulating over $2 billion in debt last year. The cost of the Model 3, which was once touted as a ‘mass-market’ car, meanwhile soared from $35,000 to $78,000.
Investors increasingly believe the company will need to raise money if it wants to survive. Goldman Sachs recently predicted it will need around $10 billion in the next two years to fund its expansion to China and its auto manufacturing plans.
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