Tesla board members have received court approval for a $919 million settlement addressing claims of excessive compensation. The agreement was first reached in July 2023, at a time when the value amounted to $735 million, but has now been officially approved, making it one of the largest settlements of its kind.
Settlement Breakdown
The agreement requires that Tesla directors collectively return $277 million in cash and $459 million in stock options. Additionally, the board members must forgo $184 million in stock options from 2021 to 2023.
The lawsuit named directors such as current Chair Robyn Denholm, James Murdoch, Kimbal Musk, Elon’s brother, along with Brad Buss, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson, Linda Johnson Rice, Kathleen Wilson-Thompson, Hiromichi Mizuno, and Lawrence Ellison.
The terms of the settlement do not detail the individual amounts each director must return, but rather only includes a total collective sum.
Court Ruling and Background of the Case
The ruling was handed down by Chancellor Kathaleen McCormick of Delaware’s Court of Chancery. The case originated from a 2020 lawsuit filed by the Police and Fire Retirement System of the City of Detroit, which argued that the directors’ compensation between 2017 and 2020 far exceeded reasonable limits as Tesla’s stock price soared tenfold during the period.
The directors involved, including high-profile figures like Elon Musk’s brother Kimbal Musk, Oracle co-founder Larry Ellison, and former board members Brad Buss and Antonio Gracias, did not admit to any wrongdoing as part of the settlement.
However, the collective decision to return compensation reflects an effort to resolve shareholder concerns and restore confidence in Tesla’s governance practices.
Governance Reforms and Future Safeguards
In addition to financial reparations, the settlement introduces governance reforms aimed at preventing similar disputes in the future. One notable provision requires shareholder approval for director compensation packages, adding a layer of oversight.
Legal Fees
The legal team representing the plaintiffs was awarded $176 million in fees and costs. Tesla had initially requested that the fees be capped at $64 million, after their initial request of over $230 million, but the court ultimately sided with the plaintiffs due to the complexity and scope of the case.
This settlement follows another high-profile case involving Tesla CEO Elon Musk, whose $56 billion pay package was rescinded last year by the same court. That decision stemmed from allegations that Musk wielded undue influence over the board, leading to compensation terms that significantly favoured his interests. The pay package was voided a second time after a new shareholder vote attempted to reinstate it. As we told you earlier today, Elon Musk has now appealed that ruling.
