A judge has ruled that electric car manufacturers Tesla have a case to answer over CEO Elon Musk's multibillion-dollar pay package following a shareholder lawsuit that claims the company has "unjustly enriched" him (via Autoblog).
A Tesla estimate showed that Musk's package was worth $2.6 billion when it was approved by shareholders in March last year. Stock analysts said that it could be worth up to $70 billion if the company grew quickly but Tesla has been unable to post a single annual profit.
Musk's compensation does not come with a salary or cash bonus but allows for incentives based on the company's market value rising to $650 billion over the next ten years. Shareholder Richard Tornetta filed a lawsuit against Tesla as a result but the board requested a dismissal.
On Friday, however, Vice Chancellor Joseph Slights of the Delaware Court of Chancery ruled against the request, leaving the company with a case to answer to.
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Telsa will now have to defend itself against allegations that it neglected judiciary duty by approving the payment which is said to have unfairly enriched the company's head. the decision also opens the company up to further prying.
Tornetta had asked that the pay package get knocked back, also urging that the board get an overhaul in order to better protect investors. The ruling focused on Tesla's compensation company, a body that is not independent of Musk, according to what Slights has written.
Slights said he would have dismissed the suit if the package had been negotiated by independent directors and approved by a majority of the shareholders not closely involved with the Tesla head.
The decision to compensate Musk was approved by 73 percent of the votes, excluding votes from Musk and his brother Kimbal. It was indicative of the fact that, while most investors were on board, not all of them were comfortable with awarding the CEO such a large compensation, especially as the company has struggled to produce vehicles efficiently and at a profit.