The lawyers who won the case against Elon Musk and Tesla over his CEO compensation plan want over $5 billion in Tesla stocks for their own compensation.
In January, a judge sided with lawyers representing a Tesla shareholder alleging that Tesla’s board misrepresented Elon Musk’s CEO compensation package worth $55 billion when presenting to shareholders.
It’s a complicated issue, but in short, the judge found that Tesla’s board and Musk didn’t play by the rules of a public company when it presented the plan to shareholders.
The judge found that Tesla had governance issues when coming up with compensation plan and those issues were not communicated to shareholders before voting on the plan.
The Delaware court found that this invalidates the vote and therefore, Tesla has to rescind the compensation plan worth roughly $55 billion in stock options to Musk. The automaker and Musk have signaled that they will appeal, but in the meantime, the lawyers have filed for compensation.
They are asking roughly $5.6 billion in Tesla stocks as payment. In the filing, the three firms who represented the Tesla shareholder admit that “the requested fee is unprecedented in terms of absolute size”, but they claim it won’t have an impact on Tesla’s balance sheet:
“This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees.”
And for shareholders, they argue that it is still a net positive since Musk has to give up $55 billion worth of Tesla shares.
Musk has already commented on the situation on X – saying that “the lawyers who did nothing but damage Tesla want $6 billion, criminal”.
Electrek’s Take
Now, that’s ridiculous. Over $5 billion for pointing out that Tesla’s board mispresented Elon’s compensation plan makes no sense.
They do deserve compensation, but that’s more excessive than Elon’s own CEO compensation plan.
However, Elon and the board are also to blame. If they didn’t have those clear governance issues, those lawyers would have come out empty-handed. They would have lost money on this case.
Top comment by Connor Paull
They mentioned that the compensation worked out to roughly 288k/hour compensation, which in turn means they are claiming, give or take, about 20,000 hours of work on this project. based on that, IMO something like 50-60 million would be more than enough compensation, representing about 6 times a 'normal' lawyer fee in Delaware.
Let’s not be blind to this situation. Those lawyers are opportunistic. They are not doing this to do things right by shareholders. They do it to get paid, and it can’t be clearer than with this ridiculous request.
On the other hand, Tesla gave them that opportunity with their governance issues, and the judge followed the law and sided with the lawyers.
As I wrote in a piece about the judge’s decision, you can believe that Elon deserves his compensation plan and still agree with the judge’s decision that Tesla has governance issues.
Hopefully, there’s still good that will come out of this. The court could reduce the lawyer’s compensation to something more reasonable. It could force Tesla to address its governance issues, and shareholders could vote again on the compensation plan – resulting in Elon getting his money.
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