By Tom Hals
WILMINGTON, Del. (Reuters) – Tesla directors, including Chair Robyn Denholm and James Murdoch, received court approval on Wednesday for a settlement worth up to $919 million that necessitates they return compensation to the carmaker to settle allegations of overpayment.
The settlement compels Tesla board members, including Denholm and Murdoch, to repay approximately $277 million in cash, $459 million in stock options, and to waive stock options for 2021-23 valued at $184 million. Notably, the settlement was not covered by insurance, as per a court filing by the shareholder who initiated the case.
Chancellor Kathaleen McCormick, overseeing the case, delivered her ruling endorsing the settlement during a telephonic hearing on Wednesday, as confirmed by an attorney for the plaintiffs and a shareholder who raised objections to the agreement.
“We’re very pleased with the chancellor’s ruling,” stated Andrew Dupre, an attorney representing the shareholders, in comments to Reuters.
The plaintiff’s legal team had previously indicated that the settlement marked the second-largest ever in Delaware’s Court of Chancery, a prominent forum for shareholder litigation. Importantly, the directors did not admit to any wrongdoing.
McCormick also granted $176 million in fees and costs to the three law firms that pursued the case on a contingency basis, a figure that ranks as the fourth-largest in the history of shareholder litigation in Delaware. In contrast, Tesla had sought to cap the fee at $64 million. The company and its legal representatives did not provide immediate comment following the ruling.
The settlement stems from a 2020 lawsuit filed by the Police and Fire Retirement System of the City of Detroit, challenging director compensation from 2017 to 2020 as excessive. During this period, Tesla directors received stock options that appreciated significantly as Tesla’s stock value surged tenfold.
In comparison, the average total compensation for directors at S&P 500 companies in 2024 stood at $327,096, according to SpencerStuart, a consulting firm specializing in executive searches. Notably, Tesla CEO Elon Musk did not receive compensation for his role as a Tesla board member.
However, a separate lawsuit filed in 2018 by a Tesla shareholder contested Musk’s $56 billion pay for his service as Tesla’s CEO. Last year, the same judge ruled to rescind Musk’s pay package, citing Musk’s control over the pay negotiations. Among the factors considered was the substantial wealth owed by directors to Musk or Tesla.
For instance, Denholm testified in the case that her tenure on the Tesla board yielded approximately $280 million, a sum she described as “life-changing wealth.” Other directors named in the lawsuit included Musk’s brother Kimbal, Brad Buss, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson, Linda Johnson Rice, Kathleen Wilson-Thompson, Hiromichi Mizuno, and Oracle Corp co-founder Lawrence Ellison. Forbes recognizes Ellison as one of
