This article is more than 1 year old

Tesla board members to return $735M in compensation settlement

Look who is learning to share: Deal includes no admission of fault, naturally

Tesla's board of directors has settled a case with shareholders who accused its members of awarding themselves oversized compensation packages.

The board members have collectively agreed to return more than $735 million to the electric car maker's coffers in combined options, cash and stocks.

As is often the outcome in settlements such as this [PDF], the deal comes with no acknowledgement of the case's merits.

While the board maintains it wasn't in breach of any fiduciary duties, it agreed to the settlement "to eliminate the uncertainty, risk, burden and expense of further litigation," per the settlement.

Along with surrendering cash and options, Tesla's board members have agreed to forego compensation for their director role between 2021 through 2023. The board also agreed to make changes to its compensation model by engaging an independent consultant and disclosing the process by which it determines non-employee director compensation, along with other transparency measures.

Among those returning cash to Tesla as part of the derivative lawsuit settlement are board chair Robyn Denholm, who succeeded Musk in the role in 2018 as part of an SEC settlement, along with Musk's brother, Kimbal Musk, Oracle founder Larry Ellison, who left the board in 2022, and Rupert Murdoch's son, James Murdoch. 

The suit [PDF] was brought by the Police and Fire Retirement System of Detroit in 2020, and accused Tesla's directors of breaching their fiduciary duty to the company and unjustly enriching themselves. 

"Their disloyal, self-interested compensation determinations have deprived the Company of tens – if not hundreds – of millions of dollars," lawyers for the plaintiffs argued, calling the awards grossly in excess of norms for corporate board compensation.

2018 was the year things went from excessive to "audacious," the suit alleged, saying that between 2015 and 2018 the average director compensation package rose from $6.3 million to $8.7 million. Tesla's board chair was allegedly the second-highest paid board position in the US that year. The suit doesn't make it clear if that applies before or after Denholm succeeded Musk.

While named as a defendant in the suit, CEO Elon Musk isn't among the board members who were asked to return funds, who were separately defined as "director defendants" in the settlement.

Musk is being sued by another group of shareholders over his $55 billion pay package awarded in 2018, which they argue was misrepresented by directors and wasn't clear on matters including performance benchmarks affecting Musk's yearly non-salary "bonus." 

The settlement in the director compensation case will still need to be given Delaware Chancery Court Chancellor Kathaleen McCormick's approval. McCormick is also presiding over Musk's compensation case, which went to trial earlier this year but has yet to be decided.

Neither Tesla nor its board of directors responded to questions. ®

More about

TIP US OFF

Send us news


Other stories you might like