In a recent development, a judge has given the green light to Tesla's directors to settle a dispute over excessive pay, bringing an end to the contentious case.
Tesla board members, including Denholm and Murdoch, are required to return a substantial sum. This includes approximately $277 million in cash, around $459 million in stock options, and forgoing stock options valued at $184 million for 2021-23. The settlement, lacking insurance coverage, was brought forth by a shareholder and approved by Chancellor Kathaleen McCormick during a telephonic hearing.
McCormick's ruling was met with approval by the shareholders' attorney, Andrew Dupre, who expressed satisfaction with the outcome. The settlement ranks as the second-largest in Delaware's Court of Chancery and avoided a lengthy trial. The directors did not admit any wrongdoing but were still liable for the significant compensation package.
The lawsuit challenged director compensation from 2017 to 2020, claiming it to be excessive, with the Tesla board members receiving stock options worth hundreds of millions of dollars as the company's value skyrocketed. In contrast, the average total compensation for S&P 500 directors is $327,096 in 2024.
Musk, a prominent figure in Tesla, did not receive compensation as a board member but is involved in a separate lawsuit challenging his enormous CEO pay package. The same judge had previously ordered the rescission of Musk's pay package due to a lack of fair negotiation and presentation to shareholders.
The settlement involves various board members, including Denholm, Musk's brother Kimbal, and Lawrence Ellison, one of the world's richest individuals. The settlement does not specify individual repayments but includes governance reforms, such as shareholder approval for director compensation, to maintain transparency and avoid future disputes.
Tesla did not respond to a request for comment, while the plaintiff's legal fees amounted to $176 million, despite Tesla's request to cap the fee at $64 million. The settlement serves as a significant step in resolving shareholder complaints and highlights the ongoing tension between shareholders and management during Tesla's rapid growth.
The shareholders' lawyer, Andrew Dupre, stated that the settlement was beneficial for business governance within Tesla. The excessive director compensation, a major point of contention, will be addressed through the implementation of shareholder approval for future compensation packages.
