Musk Testifies in Trial Over His Tesla Compensation Package

Elon Musk testified on Wednesday that he was not involved in the discussions among Tesla board members about a 2018 pay package that granted him billions of dollars in stock options, helping to make him the world’s richest person.

Speaking in a courtroom in Wilmington, Del., Mr. Musk pushed back against accusations in a shareholder lawsuit that the electric car company’s board was stacked with friends and other people close to him who did his bidding.

“I was completely focused” on managing Tesla, he said.

The case, in which Mr. Musk testified for less than three hours, centers on a compensation package that awarded Mr. Musk stock options that gave him the right to acquire nearly $50 billion in Tesla shares if the company met certain revenue, profit and share price goals. At the time, the deal was one of the largest of its kind, and it has become a template used by many other corporate boards to reward chief executives.

In court documents, lawyers for the shareholder who brought the case, Richard Tornetta, contend that in April 2017 Mr. Musk started to outline the pay deal with a director, Ira Ehrenpreis, who headed the board’s compensation committee. The plaintiff’s lawyers have also said in court filings that Tesla directors and executives said in depositions that the board did not expect Mr. Musk to leave the company and had not begun to identify potential successors to him.

On the witness stand, Mr. Musk also seemed to rebut a claim in the lawsuit that the shares he already owned in Tesla — about 22 percent of the company — were incentive enough. Amid an existential struggle to ramp up manufacturing of the company’s first mass-market car, the Model 3, he said he was considering leaving Tesla.

“We were at an inflection point where we had to decide whether I would run the company or someone else would run the company,” Mr. Musk said. “I did not want to be C.E.O.”

Antonio Gracias, who was on Tesla’s board until last year, testified later on Wednesday that the board had considered finding someone else to take on the chief executive role so that Mr. Musk could focus on the company’s products. The board, he added, never found a suitable candidate.

“We needed him all the way in, all the time,” said Mr. Gracias, who is also on the board of SpaceX, where Mr. Musk is also chief executive.

In response to questioning on the stand, Mr. Gracias said that he had been friends with Mr. Musk for more than 20 years and that their families had been on vacations together.

Lawyers for Mr. Musk and Tesla directors filed a motion to dismiss the suit, but in 2019, another Delaware judge allowed most of the case to proceed.

The case is being heard by Chancellor Kathaleen McCormick of the Delaware Court of Chancery. She also presided over the short-lived lawsuit Twitter filed in July against Mr. Musk to force him to go through with the acquisition of the social media company after he sought to back out of the deal. Mr. Musk completed the deal last month.

More than a year after the 2018 Tesla pay deal was put in place, the company’s stock started climbing sharply, going from about $21 to a peak of about $410 last November. It has since fallen more than 50 percent and trades around $187.

In addition to defending himself, Mr. Musk used his time on the witness stand to hit some of his favorite talking points, including how Tesla single-handedly created the electric car business and why he loathes the Securities and Exchange Commission and investors who bet against the share prices of Tesla.

“Tesla has had an immense effect on the world,” Mr. Musk said in response to a question from a lawyer representing Tesla, Evan Chesler, that appeared designed to show that he had earned his pay. “Not just that Tesla is making electric vehicles — we have been really the main reason why the rest of the car industry has moved toward sustainable, electric vehicles.”

Under questioning by Gregory Varallo, a lawyer representing shareholders, that seemed designed to show that Mr. Musk did not always heed authority, Mr. Musk lashed out at the S.E.C. The commission accused him of securities fraud for claiming in August 2018 that he had “funding secured” to take Tesla private. To settle that case, Mr. Musk stepped down as chairman of Tesla, paid a fine and agreed to have a lawyer vet some of his social media posts about Tesla. In April, a federal judge refused a request by Mr. Musk to end his agreement with the S.E.C.

Mr. Varallo asked a series of questions designed to show that Mr. Musk acts with little oversight from the Tesla board by, for example, deploying the car company’s engineers to help him at Twitter.

“Did someone ever suggest to you that it might not be a good idea to use the resources of a public company for a private company?” Mr. Varallo said.

Mr. Musk replied that the engineers came voluntarily and did the work on their own time. “It was very short term,” he said. “It lasted for a few days, and then it was over.”

Mr. Varallo then asked: “Did any of these so-called independent directors call you and say it might not be a good idea?”

“I don’t believe I received a call,” Mr. Musk responded.

James Murdoch, the media executive who has been on Tesla’s board since 2017, testified later on Wednesday that the board’s audit committee was aware that Mr. Musk had asked Tesla engineers to do volunteer work at Twitter and was monitoring the situation. Mr. Murdoch added that he believed most of the work Tesla engineers were doing at Twitter had been finished.

“Shareholders have been rewarded, frankly, in a historic fashion,” Mr. Murdoch said about Mr. Musk’s leadership of Tesla.

Under questioning, Mr. Murdoch acknowledged socializing with Mr. Musk, saying their families had spent time together on trips to Jerusalem and Mexico.

In his own testimony, Mr. Musk at times spoke quietly and briefly by giving one-word answers to some questions. On other topics, he spoke at length.

At one point relatively early in his testimony, Chancellor McCormick expressed frustration with Mr. Musk’s digressions, saying: “I’m going to interrupt Mr. Musk, because we can all listen to this all day. It’s very interesting, but I don’t think it was responsive to the question, which I’ve now forgotten.”

Mr. Musk’s testimony ended around noon. The trial is slated to wrap up at the end of the week. Chancellor McCormick is expected to rule on the case later, possibly in a few months.

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