Wilmington, Delaware – Tesla finds itself in a legal battle over a proposed $5.2 billion award for lawyers who successfully challenged Elon Musk’s pay package. The electric car company argues that the requested amount is excessive, claiming it would be the highest hourly rate in history.
In January, a Delaware court invalidated a proposed $56 billion pay package for Musk, citing improper approval by Tesla’s board and harm caused to shareholders. Lead lawyer Greg Varallo of the plaintiffs’ law firm Bernstein Litowitz sought an award of approximately 29 million Tesla shares following the judgment. He argued that this request aligned with Delaware precedents on how much lawyers should receive as part of the “conferred benefit” to shareholders.
Tesla contested the benefits claimed from the initial ruling as “therapeutic or unquantifiable.” The company pointed out that the requested award, initially valued at $5.6 billion, would far exceed any fee in Delaware legal history. Furthermore, Tesla calculated that the sum equated to $288,000 per hour, potentially making Bernstein Litowitz and two supporting law firms top Tesla shareholders.
The ongoing dispute forms part of Tesla’s broader efforts to challenge and overturn the court’s decision. The company plans to hold votes at its annual meeting next week, one seeking to reinstate the $56 billion award and another aiming to relocate Tesla’s domicile from Delaware to Texas.
In 2018, when Musk’s pay deal was put into place, Tesla incurred a $2.3 billion accounting charge. Tesla argued that this charge represented the maximum benefit to shareholders, leading to the much lower $13.6 million figure proposed by the company.
Including information about small shareholders opposing Varallo’s request and the difficulty of convincing the court of value added after a case concludes adds depth to the ongoing legal battle. Uncertainty looms over the outcome of Tesla’s shareholder meeting as Musk’s ownership stake hangs in the balance. Support from proxy advisers against the pay award and challenges faced by international shareholders in voting further complicate the situation.
Robyn Denholm, Tesla’s chair, acknowledges the uphill battle, likening it to climbing “Mount Everest.” The push for reincorporation in Texas faces resistance, with key proxy advisers advising against the move. Musk’s future at Tesla remains uncertain, with potential ramifications for AI development outside the company if greater control is not achieved.