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A shareholder who attempted to prevent the $56 billion bonus that Tesla agreed to pay its CEO, Elon Musk, if he met certain objectives, hired lawyers who now seek to be paid $7 billion.
The start of 2024 was particularly eventful for Tesla. Not from a product standpoint, but due to the battle among shareholders, especially between one of them and CEO Elon Musk. However, this internal dispute has just taken another (surprising) turn, as the lawyers who defended the interests of the dissenting shareholder, Richard Tornetta, who aimed to stop Tesla from fulfilling the agreement it signed six years ago with its CEO—to pay a $56 billion bonus if Musk met growth objectives deemed unimaginable by the board—are now demanding a substantial fee for their work, approximately $7.2 billion. This comes after a court battle that, by all indications, is unlikely to succeed.
Tesla’s board agreed with Musk on a series of goals that, if exceeded, would lead the company to pay the CEO a $56 billion bonus. They even gave him ten years to achieve his goals, which Musk needed only six years to accomplish. However, before the $56 billion in stock was delivered, Tornetta, a shareholder with only nine shares at the time of the complaint—while Musk holds 715 million shares, about 23% of Tesla—went to court, accusing the company of making a disastrous deal. In January 2024, a Delaware state judge sided with him, accepting the argument that the CEO might have undue influence over the directors who approved the bonus, as he was the one who appointed them.
Tornetta hired three law firms to build the case against Tesla, and now the lawyers claim they worked on the case for five years and seek to be compensated with 29 million shares of the company, which amounts to about $7.2 billion. While paying this amount to save $56 billion might seem like a bargain at first glance, it could actually increase the loss, as in June, Tesla asked shareholders to express their position on the CEO’s bonus payment, and 77% responded affirmatively.
The case will now return to the Delaware court, where Judge McCormick ruled in favor of Tornetta in January, but the majority position of the shareholders will make it difficult for her to repeat the decision. Additionally, to prevent courts from intervening in corporate management again, Tesla has also asked shareholders to approve a change of incorporation to Texas, with 63% agreeing.
It is worth noting that this internal Tesla dispute that spilled over into court began in 2018, when Musk presented his growth strategy to the board for the coming years. According to the CEO, the company, which then had a market capitalization of $49.9 billion, would grow exponentially, but the other board members were not entirely convinced of such brilliance or efficiency. Thus, Musk not only committed to working “for free” until the goals were achieved—potentially for the rest of his life, according to the most skeptical—but would only receive the $56 billion if he exceeded a series of 28 targets, 12 of which were related to the company’s market value increase in $50 billion increments, and with the fulfillment of each of these goals, the CEO would receive 1% of the company’s shares.
To everyone’s amazement, Tesla’s value did indeed soar, reaching $650 billion in 2020, with a total of 12 “jumps” of $50 billion, which, along with other revenue and profit bonuses, secured Musk a stock value of the mentioned $56 billion bonus.
