A judge in Delaware has ruled that Tesla’s board of directors must defend chief executive Elon Musk’s lucrative pay package at a trial after a lawsuit was submitted against them by one of their shareholders.
Musk’s compensation, first announced in early 2018, could net the entrepreneur more than $50 billion if he meets company milestones over the next decade. One of these goals includes raising the company’s market capitalization tenfold to $650 billion, which would make Tesla the fourth most valuable company in the United States.
CNBC reports that, on Friday last week, Vice Chancellor of the Delaware Court of Chancery, Joseph Slights, ruled against the electric car manufacturer’s request to dismiss a shareholder lawsuit that asserts Musk could be unjustly enriched because of the compensation package. This means the board must defend itselff against allegations that it breached its fiduciary duty in approving the package and that it unfairly enriches its CEO.
The lawsuit, filed by Tesla shareholder Richard Tornetta, asks for the pay package to be rescinded and the board to be overhauled to better protect investors. Judge Slights revealed Tesla admitted its compensation committee was not independent of Musk, adding that the lawsuit would have been dismissed if the package had been negotiated by truly independent directors and approved by a majority of shareholders unaffiliated with its chief exec.
While Musk does not hold a majority of Tesla stocks, the judge has determined his sway over the company makes him in effect a controller of it from a legal standpoint. Consequently, the company’s board of directors is subject to a higher standard of legal oversight for decisions it makes regarding its relationship with Musk.