Tesla Inc. directors, including Elon Musk, awarded themselves massive compensation packages over a three-year period that improperly siphoned hundreds of millions of dollars out of the electric-car maker’s coffers, a Detroit pension fund invested in the company alleges.
Tesla’s board members used their positions to “enrich themselves at the company’s expense,” lawyers for the Police and Fire Retirement System of Detroit said in the 78-page complaint. “They have granted themselves millions in excessive compensation and are poised to continue this unrelenting avarice into the indefinite future.”
The fund isn’t the first Tesla investor to take issue with pay and incentives for Musk and other directors.
An individual Tesla investor argued in a 2018 suit that directors should rescind Musk’s multibillion-dollar pay package and the company’s board should be shaken up to better protect the carmakers’ shareholders. That case is set for trial in October of next year in Wilmington, Del.
Tesla didn’t immediately respond to an email after regular business hours Wednesday seeking comment on the new suit.
Musk has for years been a lightning rod over executive compensation. In 2018, Tesla shareholders approved a controversial long-term incentive plan that offered the entrepreneur the chance to reap more than $50 billion from stock-option grants if the company increased its market capitalization to $650 billion and achieved other objectives.
The directors went overboard on compensation starting in 2017 and didn’t stop abusing the system over the next three years, the pension fund alleged.
In 2018, Tesla’s two non-employee directors received stock grants worth more than $8.7 million for the year, and the board chairman — Australian telecom executive Robyn Denholm –- was the second highest-paid board chair in the U.S., according to the suit.
Denholm replaced Musk as board chair as part of a settlement the company reached with the U.S. Securities and Exchange Commission over allegations that the billionaire chief executive’s prolific tweeting about the company crossed a line and violated securities laws.
Regulators pounced after Musk tweeted in August 2018 that he had “funding secured” to take Tesla private at $420 a share. That sent the company’s shares up more than 13 percent. As part of the SEC accord, Musk agreed to have certain tweets approved by the company’s lawyers.
The fund wants Delaware Chancery Judge Joseph Slights III –- who is handling the other investor case over the Tesla board’s pay, as well as a legal challenge to the company’s buyout of solar-panel maker SolarCity -– to find the board’s compensation awards were excessive and to make the directors pay back the company.
The case is the Police and Fire Retirement System of Detroit v. Musk, 2020-0477, Delaware Chancery Court (Wilmington).
