"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. "
Here's another fun thing (can't edit my comment) - I decided to go look at who exactly are these lawyers, It's a collection of lawyers across 3 firms (as is common in a case this large), I went and looked at the firms they used, and if you add up every single lawyer at all 3 firms, it's 91 lawyers total (including associate lawyers - two of the firms are tiny and specialized). If they get it, that would be what... 65 million per lawyer in all the firms involved... not a bad exit ;)
Here's another: the best case value of Musk's "unconscionable" pay package (in the form of conditional stock grants) at the time it was offered was about $5B, roughly the same amount the lawyers are asking for.
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.
Musk's pay increments were tied to performance milestones. Which he achieved. It really is not the court's role to say the compensation was excessive. This will likely be overturned on appeal.
The hypocrisy of the lawyers to expect pay of $300k/hour is breathtaking.
It definitely is the court's place to rule on excessive compensation packages. Musk and the board have fiduciary responsibilities to the other shareholders. The other shareholders can sue if they believe they are being stolen from. The court found that there had been no real process to decide if that much compensation was in the best interest of the shareholders because it seems they are all just Musk puppets.
Musk more than met his fiduciary responsibilities when he increased the stock value tenfold. In what world is that not in the best interest of the shareholders?
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.)
> Musk more than met his fiduciary responsibilities when he increased the stock value tenfold.
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.
> 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.
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?
> So they were not "Musk puppets". If they had been, they would not have been capable of pushing back at any time.
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.
>> the opinion says either one suffices, but I've seen commentary that seems to state both are needed
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 argued, successfully, that Musk mislead the board when they approved his payout. They are being paid by Tesla for prptecting Tesla's money. For every dollar they are asking for, they saved shareholders almost 9 dolars.
I’m an actual shareholder, and I was furious over the 50B compensation package.
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.
Where do you think Tesla stock would be without Musk? Would it have gained over $500B in value over the last 6 years?
> 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).
Farther ahead. Musk has messed up so much it’s unbelievable. He promised $25K cars and FSD and instead got distracted by Twitter and instead shipped an overpriced truck. He’s suing OpenAI for going off-mission but that’s also exactly what he’s done.
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.
Neither. Stocks move up and down. Their revenue was like 5xing with also zero stock movement, and this is way before he did any sort of controversial tweet. Stocks are irrational. They zoom up when they want, and fall off the same.
Musk makes big bets. 1000x bets, as GGP said. You can't expect all of them to work out.
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).
The products were already designed and in the release pipeline at the time. He's done very little since. In fact, all his bad actions started around then.
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.
Are they asking for actual money, or best-case money? It seems like the former from the text in the article, but that's hard to believe.
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.
How can board be misled by elon musk. The board took action on behalf of their own self interest. And, if there is voting again I am sure Elon will win.
Misled? They were self dealing. The board returned 750M of stolen funds just to avoid prosecution. Friends and relatives of Elon, awarding themselves billions because they were guarding the vault and they could.
"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.