Tesla ordered by judge to turn over documents related to Elon Musk’s $55 billion compensation plan

Elon Musk
  • A judge on Monday ordered Tesla to turn over documents concerning Elon Musk’s compensation plan.
  • Shareholders sued Tesla in 2018, arguing its board wronged investors by awarding Musk such a lucrative package.
  • The judge told Tesla to turn over communications between Musk and its top lawyers ahead of the board’s approval of the plan.
  • See more stories on Insider’s business page.

A Delaware judge on Monday ordered lawyers representing Tesla’s board of directors to turn over certain communications that CEO Elon Musk may have shared with the company’s top in-house attorneys before the board approved a compensation plan in 2018 that could net Musk more than $50 billion.

The ruling by Vice Chancellor Joseph Slights Jr. came in response to a motion to compel filed on behalf of shareholders who have accused Musk and Tesla’s board of directors of breaching their fiduciary duties to the company and its stockholders, granting unjust enrichment to Musk and wasting corporate assets.

While granting the plaintiffs access to certain documents that Musk either sent or received, Slights denied access to a broader range of other documents that defense attorneys have argued are similarly protected by attorney-client privilege.

Slights said documents that Musk shared with Tesla general counsel Todd Maron or deputy general counsel Jonathan Chang before the board signed off on the compensation plan should be provided to the shareholder plaintiffs.

The plaintiffs have argued that Chang and Maron, who was Musk’s former divorce attorney, worked to advance Musk’s interests and negotiated on his behalf against the board’s compensation committee.

“Leveraging his control, close personal relationships, and reputation for retribution, Musk co-opted Maron and Chang to help him structure the plan free from committee involvement,” plaintiffs’ attorneys wrote in asking Slights to force the company to turn over documents.

“Musk and his agents handed the committee a fully-baked plan,” they added.

While Slights agreed that communications directly involving Musk should be disclosed, he refused to order defense attorneys to turn over other communications among board members, Chang and Maron, and an outside law firm.

The judge said there was no basis for him to order the production of documents that may be protected by attorney-client privilege when the information might be available from other sources. He noted that Musk, Maron, Chang and compensation committee chair Ira Ehrenpreis have yet to be deposed in the case.

The plaintiffs argued in their motion to compel that Tesla was improperly shielding hundreds of documents that Maron or Chang shared with the compensation committee and its advisers.

Attorney Gregory Varallo told Slights on Monday that the plaintiffs in the lawsuit, which was filed in 2018, still don’t have an answer to a simple question: “Whose idea was the largest compensation plan ever designed?”

“If you read the record to date, no one seems to know,” said Varallo.

“There was quite a lot of sausage-making taking place before this was even a twinkle in the eye of the compensation committee,” he added.

Vanessa Lavely, an attorney representing the Tesla directors, told Slights that the board followed “a robust process” to develop and approve the compensation plan.

“There was absolutely no rubber-stamping here, and the defendants look forward to the opportunity to present this record to the court,” she said.

In 2019, Slights refused to dismiss the breach-of-duty claims against Musk and Tesla directors, and an unjust enrichment claim against Musk.

Under Delaware’s “business judgment” rule, courts typically give strong deference to a corporate board’s decision-making unless there is evidence that directors had conflicts or acted in bad faith. If a plaintiff is able to overcome the business judgment rule’s presumption, the board’s action is then subject to an “entire fairness” analysis, which shifts the burden to the corporation to show that the deal involved both fair dealing and fair price.

Slights said that because the plaintiffs had adequately pleaded that Musk was a controlling shareholder and had a conflict of interest, the case lent itself to “heightened judicial suspicion.”

Under the plan, Musk stands to reap billions if the electric car and solar panel maker hits ambitious market capitalization and operational milestones. For each of 12 milestones the company achieves, Musk, who already owned more than 20% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant.

Each milestone includes growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk would receive the full benefit of the pay plan, $55.8 billion, only if he leads Tesla to a market capitalization of $650 billion and unprecedented revenues and earnings within a decade.

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The minimum wage would be $44 per hour if it had grown at the same rate as Wall Street bonuses

GettyImages 1207533986 Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 17, 2020 at Wall Street in New York City. - Wall Street stocks rallied Tuesday on expectations for massive federal stimulus to address the economic hit from the coronavirus, partially recovering some of their losses from the prior session. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
Wall Street employees based in New York City earned an average bonus of $184,000 last year – a 10% increase from the year before.

The chaos that the pandemic unleashed on America’s economy turned out to be a major boon for Wall Street traders, according to new data from the New York State comptroller’s office.

Wall Street firms paid their New York City-based traders an average bonus of $184,000 last year, a 10% increase from 2019, New York comptroller Thomas DiNapoli said in a press release Friday.

But those paydays have been skyrocketing for decades. Since 1985, Wall Street traders’ bonuses have grown 1,217% – and that’s just a fraction of their overall pay, which was more than $406,000 in 2019, according to data from DiNapoli’s office.

By comparison, the federal minimum wage has flatlined at $7.25 per hour – or $15,080 annually – for 12 consecutive years. When adjusted for inflation, it has actually decreased by 11% since 1985.

If the minimum wage had instead grown at the same rate as Wall Street bonuses, it would be $44.12 per hour today.

Unlike a majority of the US, Wall Street saw massive financial success in 2020, and experts say it exposed just how detached the industry has become from the rest of the country’s reality.

“It’s just another reminder that there’s a total disconnect between what happens on Wall Street and what happens in people’s everyday lives and in the real economy,” Sarah Anderson, director of the global economy program at the Institute for Policy Studies, told Insider.

Read more: Reddit day traders wanted to beat Wall Street to prove the system is rigged. Instead, they did it by losing.

The stock market blew past pre-pandemic levels months ago as millions of Americans still struggled to find work, while increased volatility in the markets led to record years for Wall Street firms that netted bank executives paydays of up to $33 million, even as many banks laid off workers despite promises not to during the pandemic.

In a blog post for IPS on Monday, Anderson highlighted how deregulation of the financial industry has allowed firms to link traders’ pay packages to increasingly risky investing practices that are mostly only beneficial for Wall Street.

“So much of what is the most rewarded on Wall Street is the kind of trading activity that really doesn’t add a lot to the real economy and isn’t essential,” Anderson told Insider, adding that last year’s huge bonuses were “mostly because of market volatility, not necessarily because they’ve added a lot of value to the economy.”

After the 2008 financial crisis, lawmakers passed the Dodd-Frank Act, which banned pay packages with “inappropriate risks,” but Wall Street lobbyists have successfully blocked efforts to implement the rule for years.

IPS’ report also examined how Wall Street has made racial and gender pay disparities worse because they’ve disproportionately hired white male employees for decades while people of color and women are overrepresented in low-wage jobs.

“Nationally, securities industry employees are 80.5 percent white, 5.8 percent Black, 11.5 percent Asian, and 8.1 percent Latino. By contrast, whites make up an estimated 55.4 percent of people in jobs that pay less than $15 per hour,” Anderson wrote.

Wall Street’s risky, lucrative business models and pay practices are coming under increased scrutiny as the pandemic forces Americans to reckon with the country’s growing inequality.

“I just hope that it will lead to a real assessment of how skewed our values are when people doing these essential jobs are paid such a pittance compared to people on Wall Street,” Anderson told Insider.

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Goldman CEO David Solomon given a $10 million pay cut as punishment for firm’s involvement in bribery scandal

David Solomon goldman sachs
Goldman Sachs CEO David Solomon speaks at the 2019 Milken Institute Global Conference.

Goldman Sachs CEO David Solomon’s pay was cut by $10 million in 2020 in response to the bank’s role in one of the biggest financial scandals in history, which has led to record-setting multibillion-dollar regulatory fines and multiple criminal indictments.

The pay cuts came in response to a nearly $3 billion settlement that Goldman reached with the US Department of Justice last year where it admitted it violated US anti-corruption laws by offering bribes to foreign government officials to win business from Malaysia’s 1MDB fund – the largest such fine ever paid by a US firm.

Solomon’s total compensation was still $17.5 million last year after accounting for the penalty, down 36% from the $27.5 million he made in 2019, the bank said in a regulatory filing Tuesday. That included a $2 million base salary, $2.65 million cash bonus, and $10.85 million in performance-related stock.

Goldman also slashed COO John Waldron’s pay by $6 million, to $18.5 million, and CFO Stephen Scherr’s pay by $7 million, to $15.5 million.

Goldman also faced investigations from international regulators in more than 14 countries including the US, Malaysia, Singapore, Hong Kong, and the UK. Malaysian regulators reached a $3.9 billion settlement with the bank last July, and two Goldman employees have been criminally indicted for their alleged actions.

The filing said that, while none of Goldman’s three top executives were “involved in or aware of” any illicit activity by the company at the time, its board of directors “views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the firm.”

Goldman beat Wall Street expectations last quarter, bringing in $11.7 billion in revenue as pandemic-related volatility helped boost the performance of its trading desks and deal-advising business.

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