Tesla directors, including Chair Robyn Denholm and James Murdoch, have won court approval for a settlement that could be as high as $919 million to settle claims of overcompensation. The settlement will require these board members to pay back $277 million in cash, $459 million in stock options, and forego $184 million in stock options over the years 2021 through 2023.
The settlement arises from a 2020 lawsuit filed by the Police and Fire Retirement System of the City of Detroit, which alleged that Tesla directors received excessive pay between 2017 and 2020. During this period, Tesla’s stock surged, and the directors received stock options that became worth hundreds of millions of dollars, creating controversy over their compensation packages.
Tesla did not admit to any wrongdoing, but the settlement has been hailed as one of the largest in Delaware’s Court of Chancery. It resolves the dispute without a trial, requiring directors to return a significant portion of their compensation, although the exact amounts for individual directors have not been disclosed.
Apart from the financial settlements, the case will also bring changes in corporate governance. Going forward, Tesla will need shareholder approval for any director compensation plans. The settlement also comes with a large award to the plaintiffs’ legal team; $176 million in fees and costs were approved by the court. This marks one of the largest legal fee awards in shareholder litigation in Delaware.
The case brings up more general concerns over excessive compensation to executives with Tesla’s board members, such as Kimbal Musk, the brother of CEO Elon Musk and co-founder of Oracle Lawrence Ellison, being brought into question by the large sums of money these people are pocketing. It serves as a reminder of public and shareholder pressure to increase the transparency and accountability in corporate pay structures.
