Elon Musk Defends His $55 Billion Pay Package

detail of his new acquisition Twitter. So it's a bit of unfortunate timing from Musk that he had to take the stand to defend his unprecedented fifty five billion dollar Tesla pay package at a Delaware trial this week, where a Tesla shareholder is challenging the package as too excessive for a part time CEO. My guest is an expert in corporate law, Eric Tallely, a professor at Columbia Law School. Eric, there seemed to be a lot of questions being addressed

at the trial. Was the payout excessive? Did the board act appropriately independently of Musk? Is he worth the money? What are the questions that the judge has to answer to come to her decision? Well, I think there are two major questions, and there's a little bit of a

rabbit hole about how Delaware law works. But the two things that are going to be really important to understand is what was the context by which the shareholders of Tesla approved this compensation package, Because it turns out that getting a shareholder vote, as long as it's a fully informed vote to approve a pay package, does a lot. It buys you a lot of real estate if you're trying to defend that pay package, but it's got to

be kind of a by the book vote. And a secondarily important issue is to what extent was the anticipated size of this compensation package within the realm of kind of a reasonable amount, something that would be fair to the other shareholders of Tesla, who, after all, we're basically going to be diluting themselves a lot as these benchmarks got met and a bunch of these options got cashed out if those benchmarks got that. So that part is really going to turn on how hard was it to

meet these benchmarks? Were they really almost like automatics or did they pretty much require must to work really hard to meet them, in which case, you know, if he didn't get paid that much maybe he wouldn't have worked that hard. That's the argument that Tesla is going to use. And so it turns out that the most likely applicable legal test here is gonna pivot on those two questions

in kind of an inter related way. The more likely it is that the shareholders actually they knew what they were voting on, they voted with their highs wide open, the more deference the judge is going to give to the pay package. On the other hand, if the shareholders didn't know everything or felt sort of bullied or forced into this vote, then that pay package and its farness

is going to get more scrutiny in court. Defending the compensation plan, Tesla directors have testified that it was important to keep Musk focused on and engaged in running Tesla. But Musk agreed with the shareholders lawyer that at the time of this pay deal, he was spending about of his time at Tesla, at SpaceX, on open Ai, boring, and neuralink. And now he testified that he's spending almost all his time reorganizing Twitter. So is he a part time CEO. Then this makes this case one of the

most unprecedented executive compensation cases that we've ever seen. Quite frankly, most CEOs don't work part time at their companies. They are full time employees, and their employees who are paid well to basically put every bit of their effort and attention into the welfare of the company. Musk has always been a little bit mercurial in his habits, and in fact,

they kind of knew that at the time. This was not one of these things where, you know, some of these other sideline ventures came up after the fact other than Twitter. So there was a sense in which they sort of knew they were getting a guy who had

divided attentions. And weirdly enough, the rationale that Twitter had for trying to make sure this pay package at least had the potential to be heavily remunerative was that they wanted to make sure that it was attractive enough to create a honeypot to steal his attention from some of

these other factors. And so it's kind of interesting that, you know, the road that we've gone down under this pay package involves Mr Musk kind of wandering off and deciding he was going to take over another company Twitter, that's not even in the space. I think that argument could cut both ways. On the one hand, the plaintiffs who were complaining about it sort of said, you know,

fat load of good that did you. You know, paying him this lucrative amount, he was just gonna wander off anyway, And maybe the defendants could say, yeah, if we aired, we aired him not paying him enough to keep him on mission and on target at Tesla, that may end up being a little bit of a standoff of a tie. I think you've manufacture that argument to go in either direction.

It is clear. It is clear that the way that this played out pretty much came close to the maximal payoff that he was going to get from this compensation package. It could have been north of fifty six billion dollars, just about fifty six billion dollars. It didn't end up quite being that because it didn't make all the benchmarks, but he's certainly made most of them, got the lion's share of that payoff. So if you look at it in hindsight, it just looks like a grotesquely large amount

that is paid. The real operative question, however, was at the time that the grant was made, given that he wasn't taking any salary, he was only going to do well, if Tesla did well, did that make sense at the time, and did the shareholders kind of agree with it? As far as the question of whether Tesla's board acted independently, Musk testified that he had no role whatsoever in setting

up this unprecedented pay package. However, in text with the board men who headed the compensation committee, Musk said he should end up owning of the company in a performance plan built around a progression of targets that would each grant him one percent of Tesla's outstanding shares. Doesn't that contradict what he testified to Yeah, there are definitely some

inconsistent statements. There were some other statements of him and the record that basically sort of said, yeah, I'm kind of bargaining against myself on this, and so you know, I think it's unlikely that at the end of the day, anyone's really going to believe that he was so hands off at Tesla that the board of directors felt completely

comfortable just telling him. Know, there are some important cases out there that if that's true, if you've got a board that's willing to stand up to you, then your route to defending your compensation package is even easier. Than what Elon Musk is facing right now. Because if you really have a board that has bargaining power and is willing to say no, they sign off on it, and then the careholders vote in a fully informed way to sign off on it. The case is basically done under

Delaware law. And it's interesting that this case has even gotten to this point and the Tesla folks and Mosque haven't even seriously tried to argue that a truly independent board kicked the tires in a really strenuous way. I think the main thing that is important in trying to argue about, you know, just how independent the board was, is, you know, really about what were the shareholders told before

they voted to approve this transaction. The plaintiffs in this case, it sort of said, yeah, the shareholders voted to approve it, so they didn't know the full story. The story that they got was that the board was really careful in working this out and in fact that the board was being led along on a leash by Elon Musk at an inaccurate disclosure of how things went down, and therefore their vote wouldn't really be a by the book vote,

it would be an hunt informed vote. Formed vote. So I think that's the main reason why this has come up, not because you know, an informed and empowered board is gonna do much work in his defense, other than the fact that, you know, the plaintiffs have made an argument in trying to beat back the shareholder vote from having any effect, that the shareholders didn't know the whole story.

And you know, there's kind of an interesting question there too, right, maybe TESLA is telling the shareholders and their proxy disclosures, Oh gosh, the board really used their own judgment in deciding to go forward on this, and they studied up on it, but it's kind of an open secret and everyone knows that Ellen is, you know, this incredibly powerful and influential person, and when it came right down to it, the board was going to be as weak need as

anyone else. So it may be the case that the plaintiffs are right that there was this description in the proxy materials, but no one actually believed it. Everyone sort of figured, yeah, Ellen probably runs the roost on this, and we're just going to have to presume that, notwithstanding what the board is telling us or what these proxy disclosures are telling us, you know, he was probably calling the shots of the whole time, and and there may be some of that argument that comes out later on

in the post trial briefing. It certainly wouldn't come out, you know, during the live trial, but that could be sort of, you know, part of the spin that that Tesla puts on it, to the extent that there were inconsistencies that come out in testimony versus what was in those proxy solicitation materials TESLAA say, yeah, but you know,

no one really believed it anyway. The shareholders kind of knew that they were getting a pretty dominated company, and they were the sentry to make sure that, you know, whatever the compensation package was was okay by them. So then why did the judge allow the shareholders attorney to go into a series of questions to show that must

acts with little oversight from Tesla's board. He asked about this report that Musk has some fifty Tesla employees working at Twitter, and asked whether a board member had ever called him to say it's not a good idea to use Tesla's resources for one of his private companies. So resources of a public company used for a private company. I think this was really meant by the plaintiffs, it was meant to undercut, not necessarily whether the board's decision

requires legal deference or not. That's not the defense that Tess was putting up. But what they do need to be able to show is that that shareholder vote wasn't built on kind of a mountain of prevarications and fanciful yarns right that that that shareholder vote the shareholders saw the package, they saw the projections, and they received a description of what went into the structuring of that package.

Part of that description did say, hey, listen, this board wasn't just like, you know, doing everything that Ellen wanted to do. They did their own study on this, and they think this is a good idea. And so I think that's the nature of the inquiry here to try to undercut or impeach the credibility of that statement that was in the disclosure to shareholders, and the plaintifts are trying to prove you know, what they told you that. But the fact of the matter is no one wanted

to say no to Ellon. And here's a bunch of examples about people being too chicken to say no to Mr Musk, And so I think that's the reason they're gonna they're gonna try to use that here. It is an important thing for the plainest to do because you know, if if this shareholder vote is found by Chancellor McCormick to be, you know, kind of a fully informed and non coerced vote of the majority of disinterested shareholders, it makes the case much harder for the plaintifts to win.

It doesn't eliminate the possibility, but it shifts all the evidentiary burdens onto the plaintiff, and so that makes it a much harder case because burdens, particularly in cases that are complex to have a lot of facts, burdens are tiebreakers, and if you're the one that carries the burden and the evidence is a tie, you lose. Chancellor McCormick is familiar with Elon Musk because she presided over the short

lived Twitter lawsuit. At one point early in the testimony to express frustration with Musk digressing, I'm going to interrupt Mr Musk, because we can listen all day to this. It's very interesting, but I don't think it was responsive to the question, which I've now forgotten, is she the right judge for this? Because she's not putting up with any of Mousque's plays. It's a valid question to ask.

The fact of the matter is a judges are people too, and be you know, a lot of this type of adjudication involves kind of a sense of the read of the room and whether the people that you're adjudicating on

have a good read of the room. And by the way, I was listening in and I had forgotten the question as well, So I think he really was, you know, doing some monologue ng um in ways that a lot of witnesses do quite frankly, I don't know if you notice, But as the testimony wore on, particularly after that, Mr Musk's affect flattened. You know, a lot of his responses were sort of monosyllabic grunts that I guess I took

to be yeses or knows. But he ended up, you know, being much less loquacious and much more clipped in his responses towards the end. One possibility was that he realized that he you know, he kind of didn't want to

try the patients of Chance for McCormick. Now, the other thing that it's worth that's worth noting, is that Chance for McCormick didn't hear any testimony from Mr musk in the Twitter Kike, because she heard a lot from his lawyers, and she saw a lot of his tweets, and she's a lot of interviews, but he never had to appear

to testify in court in front of her. And so I think, you know, it's important to realize, and lawyers and judges realized this as well, that you can become exasperated with, say the behavior of a lawyer or a legal team in front of you without necessarily that exasperation, you know, getting kind of transplanted onto the client themselves. This is a case that's been baking all the way since you know, two thousand nineteen, actually two thousand eighteen,

and the factual record is long. It has not been on a rush schedule in which tempers get short and people get impatient. This has been a you know, a trial that's been coming up for years, and so on

some level, I kind of feel like a cancer. McCormick is, in my view, sort of the consummate professional in in these sorts of settings and is able to separate these things from one another and be the types of cases are so different from one another that I don't, you know, I don't really think that this kind of has as much of a time as of the essence aspect as

the other one was. So I think it's a little easier to achieve some form of acoustic separation between these two cases than it might be if both of these were kind of fire drill cases that were happening at the same time. This is a small thing, but I wonder if things like this hurt Musk's credibility with the judge. There was a lot of questioning about his opinion of the SEC. He had written a tweet in July saying

SEC three letter acronym, middle word is Elon's. This was widely read as being vulgar and an insult to the SEC, but he claimed on the stand that it was misunderstood and really meant save Elon's company. I mean, a, I don't think anyone familiar with that particular acronym, and be the answer just doesn't seem incredible. Yeah, one's mind can cycle for the various other things that could stand in for those other two initials. And I won't give you a drum solo myself, but yeah, I think this is

something that he loves to do. He loves to do the slightly juvenile, coy kind of word puzzled type of thing, and I think that judges can lose their patients with that. You know, it's interesting that probably the Twitter case in many respects may have laid bare at least one realization that, you know, messing around with the Delaware courts. You know, you think of this is just a state court system. It's nothing compared to the SEC. But the Delaware courts

are a special breed. They are sort of the business court of the United States on some level. And I think on some level of the outcome of the Twitter case, in which after putting up a big protestation thinking he was going to bend gravity to walk away from that deal, he ended up closing on its original terms. And I think that might have been a large part because of the credibility of the court system. And so, yeah, would

you like to walk that thing back? Probably would, at least to the extent that it was going to be presented in front of Chancellor McCormick. But I think at the time he really didn't realize that the Delaware state court system is pretty professional and they're probably not to be trifled with on some level. Now I will also say that this particular case, I was never much of a fan of Mr Musk's position in that earlier case.

I just thought it was a it was a case of buyer's remorse, and he was drastically and desperately looking for escape hatches to get out of, but none of them was a very good escape hatch. This is a stronger case for him. If I were posting odds on this, I think it's quite likely he's going to win this case, in large part because you know, there is this shareholder vote out there the extent of failed disclosures. They're gonna have to, you know, show a pretty strong case to

undercut the validity of that shareholder vote. And then, in addition, you know, a lot of corporate law deals with sticks with liability. Stick. If you do this, CEO, we're going to punish you by forcing you to pay damages and so forth when it comes to compensation. It's effectively the

other side of the sticks. It's the company is also sort of saying, Okay, those sticks are doing some work, but we want to do a little bit more work with some carrot to fine tune those incentives of our CEOs and our board members and courts over the years, I think probably appropriately has said, yeah, we're probably not getting it right for all companies when it comes to

the sticks. So we're going to give them a little bit of deference when it comes to trying to figure out how they're gonna situate their carrots on the other side of those sticks. And you know, it may well be that Tesla overpaid. It may well be that its shareholders voted in a foolish way to permit this thing

to go forward. But if the shareholders were fully informed, they knew that what they're getting into, they knew that they could be heavily deluded later on, it's a much more defensible case for Mr Musk sort of say, yeah, and I accepted on that basis, and you know, on some levels, for the same reason that I kind of had to go through with the Twitter purchase, Testla should have to go through with this contract that they after

all agreed. Now the shareholders, there at least the plaintiffs, they're having buyer's remorse, but you know, they voted to agree to pay me this, and so I think there is kind of an interesting aspect in this case. The law is not identical of course, but the tables are a little bit turned that now. Mr Musk is the person that's sort of saying, let's enforce this contract has written, and it's the test LA shareholders that are saying, let

us walk away from this contract. Thanks. Eric. That's Columbia Law School professor Eric Tally, a Republican e o C commissioner, is deploying a rarely used agency procedure to silently initiate a discrimination investigations against at least three companies providing their employees with abortion travel benefits. That's according to five attorneys who have seen the charges, joining me as J. Edward Moreno, an employment discrimination reporter at Bloomberg Law who wrote the

exclusive story. How rare are these charges coming from commissioners directly? These commissioners charges e o C commissioners, which there are five of them, are able to file them independently. They're typically used very rarely. In the past two fiscal years, they've only been used three times. We still don't have

the data for this past fiscal year. But they're typically used to push settled law or add claims to existing investigations, where, for example, if somebody file the charge with the e O C because they believed they were discriminated on the basis of race. The and the e o C finds that the employer was also discriminating on other grounds, they can file a commissioners charge to add a claim to that investigation that the victims didn't necessarily make. And so

tell us about these charges you learned about that. We're brought by Republican Commissioner Andrea Lucas. E o C Commissioner Andrea Lucas, who is appointed by President Trump in has filed these commissioners charge, which is against at least three companies um alleging that they're discriminating against pregnant employees and disabled employees because they're offering they're allegedly offering um abortion

travel benefits, but not benefits for other medical procedures. What I don't quite understand is what other procedures are they claiming need travel benefits. Women are getting travel benefits to travel out of state because in state they can't get an abortion. So what is Lucas claiming here that there are disabled workers and pregnant workers who need to go out of state for procedures and they can't. Yeah, So

it's unclear from the charges. They're very brought. They just make those two assertions that the company is discriminating against pregnant workers and that it's discriminating against disabled workers. So

the facts of these cases are not yet established. The investigations are still ongoing, but the charges make the assumption that, for example, somebody with maybe a complicated pregnancy at that company or at any of these companies, was maybe not able to travel to see a specialist, or a person with a disability was not able to travel to seek the care that they needed. Meanwhile, these companies were offering

travel for abortions. As you mentioned, you know, it is a little unusual because abortion is unique in that it depending on where you are, you may not have access to that anymore. Where with pregnancies or other conditions, those services are generally offered locally or you know, if not in the general vicinity of where you're working. It's also unusual in the from the attorneys that I talked to for this, Typically abortion travel is covered under a more

broad healthcare travel policy in an employer's healthcare plans. So you know, they may have advertised it as a pledge to cover abortion travel, but as far as you know, their healthcare plan is concerned. It's just a general healthcare travel policy that happens to include abortion. A commissioner can just you know, launch an investigation and then the investigators have to investigate it. Is there any other step in between? No, So there's a couple of avenues for commissioners charges to

go through. In this case, um, you know, Andrea Lucas has the power and authority to based on information she you know, maybe publicly available of information or information she required otherwise, uh, to file these charges directly. And then the district office where that employer you know is headquartered, we'll have to investigate that claim. And then if they find that there was discrimination, then they kept to conciliate or you know, try to reach a settlement, and if

that doesn't work out in the EOC can sue. But this avenue that Andrew Lucas is choosing is quite unusual. What is more common and more routine is for say, an alleged victim of discrimination at a company to come forward to the e o C and say, for example, that they feel that they were discriminated against based on their race. And let's say, throughout the investigation, the e o C finds that the employer was discriminating against other

employees and candidates based on gender. Well, the victims didn't make that specific claim, so the e o C can use the commissioner's charts to add that claim to an existing investigation. That's what is more common for for these types of charges. Is there any case law to support these charges, any precedent or are they completely novel? It's

pretty novel. You know, it's only been since June that, you know, the constitutional right to an abortion has been overturned, so this has not been tested in federal courts yet. But the laws that place here are Title seven of the Civil Rights Act of nineteen sixty four and the

Americans with Disability Act on the Pregnancy Discrimination Act. And you know, I talked to a lot of lawyers for the story and trying to find these charges, and generally what they argue is that the Pregnancy Discrimination Act in fact protects an employer's ability to provide abortion benefits rather than preclude them from doing so. And also, what's interest think about these charges is that since they come from

a commissioner, they don't necessarily have a victim. There wasn't, you know, somebody who came forward and said that they felt that they were discriminated against based on off of these benefits. So we still haven't seen that come forward, and at least that we are aware of UM in the courts or in the public eye. What happens. Suppose the agency investigates and it believes that discrimination occurred. What happens?

Then the EOC would then have to go through a conciliation period where it tries to negotiate a settlement with the employer. UM. A lot of times that doesn't end

up happening. UM, they are not able to reach a settlement, and then the District Office, which you know also is the one trying to reach the settlement, will let the General Council's Office know and they will make a decision in this case since it's you know, uh, the issues here are novel and like I said, I haven't been tested in corporate were it would likely result in a commission vote. So the five commissioners now four commissioners because UM when just just resigned, will have to vote on

whether or not they would like to pursue litigation. Here, you write that these arguments that Lucas makes mirror those of the agency's former general Council right, so UM. The agency's former General Council, Sharon Gustafson, she was appointed by President Trump and served the General Council throughout the Trump administration.

In October, began sending letters two employers basically warning that her interpretation of the law as a former eo C General Council was that, you know, the same as what Andrea Lucas is alleging in these charges is that the

abortion travel benefits are potentially discriminatory. UM. That ruffled a bit of feathers among the employer community and little er than a letter to the e o C requesting some sort of ethics investigation or some sort of response from them, saying that that you know that that was not the agency's position, and that's pretty much what they did. They responded to the letter saying that kostoptancies don't reflect There's one thing that I find interesting about Christopson's letter is

it was sent out broadly. She's, um, you know, a solo practice attorney, and it was sent out broadly to employers. UM. And it's unclear the letters goal one if it was if its goal was to attract clients or and to the letter also specifically notes that you know, employers could be subject to commissioners charges or targeted investigations, which, as I mentioned earlier, have historically been pretty rare, especially in the way that she's suggesting that they may be used.

Does Lucas have a connection to Gustafson. They crossed passed at the agency. Um. Lucas, uh, like I said, joined the agency in the latter half of towards the end of the Trump administration, and Kustafson left the agency in early one at the start of the wider administration. And tell us about Lucas and her focus. Yes, so, Lucas has been known to UM have a priority in religious

liberty in the workplace. She often speaks at events and other sorts of panels where she talks about religious discrimination in the workplace. She's also has quite a bit of focus on disability issues. In fact, she deviates from her Republican colleagues often when it comes to those litigations votes, particularly when it comes to you know, religious discrimination or disability discrimination issues. What's the makeup of the commission as

far as Republicans and Democrats? Yes, so, currently, um, there's a Democratic chair who sets the agenda and puts things forward for a vote, and there are three Republican commissioners and one other Democrats, so it's a Republican majority but

with a Democratic chair. Um. As of this week, Janet Dillon, who is one of the Republican commissioners who charged the commissions during the Trump administration, resigned, so by next week the Commission's makeup will be and even to two partisan split, so much of the same gridlock that the agency is that the Commission has been experiencing for the past year, so will likely remain for you know, until Biden is able to confirm a Democrat into the open seats, having

has he nominated a Democrat. Yeah, and um, I believe in the spring he nominated a civil rights attorney, Coupon a cour and she's had a bit of trouble getting through the Senate. Um. You know, there was a committee markup for her confirmation where there was a deadlock, which means that the Senate needs to have another procedural vote

before there's a full floor vote on her nomination. Currently, and now after the mid terms, it seems that the Senate is going to have you know, Democratic control, but still a pretty pretty razors and majority. So we'll see how that plays out. I know that by the end of the year she is not confirmed, she will have to be renominated and start the whole process off again.

Is there a new General Council since Gustafson left? Her position has been opened since she left in early There is a nominee for her position, who a fact has a committee vote coming up this week, considering she wouldn't you know she has a little bit less power than a commissioner, does you know? She doesn't vote on policy issues necessarily. She has proven to be a little less controversial than the cut has vote. You know, Still with the Senate, it's it's very hard to predict whether her

nomination will go smoothly. Um, and she has a committee markup coming up this week. The agency said that Gustafson's views after she sent out that letter didn't reflect the views of the E e O C. So then why is this commissioner able to start an investigation with those

same views? You know, commissioners have the authority and power to do that completely into sally, And in fact, she filed these charges and her colleagues wouldn't even necessarily be informed about them like she could do this completely independently, without having any sort of vote or discussion with her colleagues. Like I said, it's it's very rare that something like that happens. I think maybe the chair might be aware

of it, but again, this is within her authority. I don't know if there's much the chair, the or anyone else at the agency can do about that. This is an exclusive. Can you tell us how you found out about this? Right? So, after we covered sharing Gustafa's letter and how that ruffled some feathers into the employer community, and you know, ever since then, I've just been really working the phones and talking to a lot of employment attorneys and I eventually heard that some attorneys that I

spoke to have clients who have received those charges. And I was able to confirm that with about five attorneys that at least three charges exist, and those five attorneys have seen those charges and read the allegations. To me, Well, congratulations on your store, Thanks Edward. That's j Edward Moreno of Bloomberg Law and that's it for this edition of the Bloomberg Law Show. Remember you can always get the

latest legal news on our Bloomberg Law podcast. You can find them on Apple podcasts Spotify and at www dot bloomberg dot com, slash podcast, Slash Law, and remember to tune into The Bloomberg Law Show every week night at ten BM Wall Street Time. I'm June Grossow, and you're listening to Bloomberg