$85 billion battle: The drummer who started the fight to block the biggest payday in history

Richard Tornetta is an unlikely campaigner against one of the world’s richest men.

Until recently, the Pennsylvania resident’s biggest claim to fame was drumming in Dawn of Correction, a now-defunct thrash metal band that described its sound as “a swift kick to the face with a steel-toed work boot”.

Next month Tesla shareholders will vote on whether to re-approve Musk’s pay package and whether to endorse the move to Texas.Credit: AP

Tornetta owned just nine shares of Tesla when he sued the electric car maker six years ago, claiming a $US56 billion ($85 billion) pay scheme awarded to the company’s chief executive Elon Musk was excessive. But when the verdict was finally announced, it delivered its own steel-toed kick to Musk’s wealth.

Delivering a ruling in January, Delaware judge Kathaleen McCormick described the compensation scheme as “unfathomable” and ruled that it should be reversed, saying Tesla’s board had acted like “supine servants of an overweening master”.

Tornetta has remained silent, but his lawyer called the decision a “good day for the good guys”.

Musk’s compensation scheme, announced in 2018, is the biggest pay package in history.

To pay out, it required Tesla to hit a series of what then seemed like outlandish targets, including a tenfold increase in its valuation to $US650 billion and a leap in sales that was viewed as ludicrous within the scheme’s 10-year timeframe.

In fact, Musk hit all the goals within four years, helping to catapult him into the upper echelons of the world’s richest people.

The court’s intervention, however, threatens that status.

Musk and Tesla’s board has now embarked on a quest to save history’s most lucrative payday.

Shortly after the court decision, Musk announced that he would transfer Tesla’s legal incorporation from Delaware to Texas in a move could revive his $US56 billion deal. But to do that, he needs the blessing of investors in the world’s most valuable car maker.

Tornetta owned just nine shares of Tesla when he sued the electric car maker six years ago, claiming a $US56 billion pay scheme awarded to the company’s chief executive Elon Musk was excessive.

Next month Tesla shareholders will vote on whether to re-approve Musk’s pay package and whether to endorse the move to Texas.

The first vote would not immediately restore Musk’s pay award but would be used as ammunition to overturn the Delaware court; the second would take the company out of the court’s jurisdiction.In another time, the vote might have been a foregone conclusion. In 2018 Musk’s payday was endorsed by 73 per cent of voting shareholders, even though Musk himself could not vote. But today, Tesla is in a rut and questions have been raised about its mercurial chief.

Shares in the company have fallen by 30 per cent this year and last month the company reported its biggest drop in sales in more than a decade.

Musk’s myriad other interests – running Twitter, starting an artificial intelligence company and his increasingly political statements – have raised concerns about his focus.

What is more, the vote on moving to Texas requires active approval from 50 per cent of shareholders, meaning that those who abstain are counted as ‘no’ votes. This is a major ask for a company that has a wide retail shareholder base not accustomed to activism.

Last week, the investing website eToro said 24 per cent of Tesla shareholders on its platform had voted with three weeks to go until the meeting. Robyn Denholm, Tesla’s chairman, has compared the task of winning approval to climbing Mount Everest. In recent weeks she has embarked on a roadshow to encourage institutional shareholders such as Vanguard, State Street and BlackRock to support the proposals.

That too may be an uphill battle. Vanguard, the biggest Tesla shareholder besides Musk with a 7.3 per cent stake, voted against the pay package last time.

Baillie Gifford, the Scottish fund manager, supported the scheme in 2018 when it was the company’s second-biggest shareholder and has vowed to back the deal again. However, it has significantly sold down its Tesla stake since the last vote.

Shares in the company have fallen by 30 per cent this year and last month the company reported its biggest drop in sales in more than a decade.Credit: AP

Last week a set of shareholders including the British union Unison, wealth manager Nordea and New York City public pension funds urged other investors to vote against the proposals. They said that Musk was distracted, writing: “The board has yet to ensure that Tesla has a full-time CEO.”

Ross Gerber, an outspoken longtime Tesla shareholder, says he expects Musk’s gambit to fail. “I’d be pretty impressed if this passes. I think no human would believe that this was a fairly negotiated pay package.”

Gerber says Musk has become too divisive. “He is now as polarising as Kanye West or Donald Trump. And so when you’re selling any product, your CEO being a polarising figure is not helpful.”

However, Dan Ives, an analyst at Wedbush Securities, predicts that Musk will be victorious. “There have been many headwinds for the Tesla story and on June 13 this should be put in the rear view mirror,” he says.

Musk is seeking 25 per cent voting control over Tesla, compared to today’s 13 per cent stake. That would set him up for a new clash with investors for whom he could once do no wrong.

Defeat could have consequences: the billionaire has said that if he can’t have greater control, he may develop new technologies such as AI and robotics outside of the company.

As the vote draws nearer, it is more than just Musk’s historic pay deal that is at stake.

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