Tesla Inc. directors, including Chief Executive Officer Elon Musk, agreed to return more than $735 million in stock awards and cash to settle an investor lawsuit accusing board members of improperly giving themselves massive compensation packages.
The directors — including Oracle Corp. founder Larry Ellison; James Murdoch, son of media mogul Rupert Murdoch; and Musk’s brother, Kimbal Musk — agreed to hand over the stock grants and cash for already exercised options, along with making corporate-governance changes to the way board-level compensation issues are reviewed, according to court filings.
The Tesla directors denied wrongdoing as part of the accord, but said they agreed to settle the case “to eliminate the uncertainty, risk, burden, and expense of further litigation,” according to the July 14 filing in Delaware Chancery Court.
Tesla didn’t immediately respond to a request to comment Monday. A Michigan-based pension fund filed the case against the carmaker’s board in 2020.
Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick still must approve the deal for it to become final.
Compensation Case
The settlement comes as McCormick also is expected to rule in another case filed by a Tesla shareholder over a $55 billionexecutive-compensation plan for Elon Musk. The suit says that the approval of the pay package, the largest in US corporate history, was marred by conflicts of interest and improper disclosures about performance benchmarks.
In the board-pay case that settled, lawyers for the Police and Fire Retirement System of the City of Detroit argued Tesla directors went overboard on compensation awards to themselves starting in 2017 and didn’t stop abusing the system over the next three years.
In 2018, Tesla’s two non-employee directors received stock grants worth more than $8.7 million for the year, and the board chairperson — Australian telecom executive Robyn Denholm — was the second-highest paid board chair in the US, according to the pension fund’s suit.
Denholm replaced Musk as board chair as part of a settlement Tesla reached with the US Securities and Exchange Commission over regulators’ claims the billionaire CEO’s prolific tweeting about the company violated securities laws.
As part of the director-compensation settlement, Tesla board members must hand over stock or cash and agree to forgo compensation for their roles as directors for 2021 through this year, according to court filings. The board also agreed to hire an independent compensation consultant to advise on director-pay issues.
The amount of shares being returned is valued at $458,649,785, while the cash being handed back to the company is $276,616,720, according to court filings.
The director-pay case is The Police and Fire Retirement System of Detroit v. Musk, 2020-0477, Delaware Chancery Court (Wilmington).
