Tesla Inc. directors misrepresented a US$55 billion pay package they recommended for Chief Executive Officer Elon Musk, a lawyer for shareholders said in closing trial arguments in a suit challenging Musk’s compensation.

Board members filled proxy disclosures with “half-truths” about the package, which would be the largest-ever awarded to a CEO, the lawyer, Greg Varallo, said Tuesday in Delaware Chancery Court. Chancery Judge Kathaleen St. J. McCormick will decide the case without a jury.

The incomplete disclosures forced investors to launch “a scavenger hunt” to get proper context on board conflicts tainting the plan and the performance goals Musk was supposed to meet, Varallo told McCormick.

The trial stems from shareholder Richard Tornetta’s claims Tesla’s board failed to exercise independence from Musk as it drew up a new pay package for its charismatic CEO based on still-unvested stock options. If McCormick sides with the investor, she could cancel the options and order the board go back and come up with a new compensation plan.

Musk took the stand in the trial in November, testifying that he he had no role in setting his compensation and no understanding of the process by which the amount was calculated. Though testimony wrapped in November, McCormick received months of briefing before holding closing arguments.

The judge requested further briefing at the hearing on Tuesday, suggesting a ruling wasn’t imminent.

A lawyer for Tesla’s directors countered Varallo by arguing that the board’s 26-page proxy disclosure about Musk’s pay “was fulsome” and accurately described the “give and get” underlying the plan.

The details disgruntled investors said the company were withheld “weren’t material to the average shareholder,” Daniel Slifkin, the board’s lawyer, told McCormick. He said a broad swath of investors understood that Musk would only get the full package if he “got the results.”

‘Part-Time CEO’

Slifkin said shareholders also benefited from the US$50 billion increase in Tesla’s value that resulted when Musk met his compensation goals in the plan.

But Varallo noted the peripatetic Musk amounted to a “part-time CEO” at Tesla over the last few years, especially after his US$44 billion acquisition of Twitter last year, and didn’t deserve the most lucrative compensation plan in history.

Besides Twitter, Musk also spends considerable time on his other startups, including aeronautics firm Space Exploration Technologies Corp., Boring Co. and Neuralink Corp, Varallo argued. There were no disclosure about the billionaire’s divided attention in proxy statements about his pay, Varallo added.

Musk has acknowledged he had little to fear from the Tesla board’s review of his pay proposal, according to court filings. “Me negotiating against myself” is how he described the process of tweaking the pay package’s details in a pretrial deposition. The board pushed to come up with the plan because of fears Musk may leave as its top executive.

McCormick noted on Tuesday that Tornetta’s lawyers are arguing that finding a single flaw in the proxy disclosures “would be the kill shot” allowing the judge to invalidate Musk’s compensation plan.

Slifkin argued that Delaware law doesn’t require a perfect board process in deciding executive compensation. There’s no requirement of a “play-by-play description” everything the board considered in setting Musk’s pay, he said.

It’s the board’s position that “whatever the process was, the plan’s give and get was fully disclosed” and that’s the crucial issue in the case, Slifkin said.

The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).

  - Bloomberg