On Wednesday, a court approved a $919 million settlement for Tesla directors, including James Murdoch and Chair Robyn Denholm, which calls for them to reimburse the automaker for overpayment claims.
Denholm and Murdoch, among other Tesla board members, are required under the settlement to refund about $277 million in cash, and $459 million in stock options, and to renounce $184 million in stock options for 2021–2023. The shareholder who initiated the complaint filed a court petition stating that the settlement was not covered by insurance.
According to a shareholder who opposed the transaction and a lawyer for the plaintiffs, Chancellor Kathaleen McCormick, the judge presiding over the case, read her decision accepting the settlement during a telephonic session on Wednesday.
The shareholders’ lawyer, Andrew Dupre, told Reuters, “We’re very pleased with the chancellor’s ruling.”
The settlement was the second-largest in Delaware’s Court of Chancery, the preferred venue for shareholder lawsuits, according to the plaintiff’s legal team last year.
The directors refused to acknowledge any misconduct.
The three law firms that initiated the action on a contingency basis were also given $176 million in fees and costs by McCormick.
Tesla had requested a $64 million fee cap from McCormick.
The charge is the fourth-highest in Delaware’s history of shareholder litigation.
A request for comment from the company and its lawyer was not immediately answered.
The agreement settles a 2020 lawsuit brought by the City of Detroit’s Police and Fire Retirement System, which argued that director remuneration had been exorbitant from 2017 to 2020.
With the tenfold increase in the value of Tesla shares at that time, the directors of the company were granted stock options worth hundreds of millions of dollars.
By contrast, Spencer Stuart, a consulting firm that carries out CEO searches, estimates that the average total salary for directors at S&P 500 businesses in 2024 will be $327,096.
Musk’s position on the Tesla board came with no salary.
In 2018, however, a Tesla shareholder brought a different lawsuit contesting Musk’s $56 billion compensation for his role as CEO.
The same judge ordered Musk’s compensation package to be cancelled last year due to Musk’s control over the pay discussions. The amount of money that directors owed to Musk or Tesla was one of the things the judge took into account.
In one case, for instance, Denholm testified that she received approximately $280 million during her time on the Tesla board, which she referred to as a “life-changing abundance.”
The complaint also cited Brad Buss, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson, Linda Johnson Rice, Kathleen Wilson-Thompson, Hiromichi Mizuno, Musk’s brother Kimbal, and Lawrence Ellison, who co-founded Oracle Corp. Ellison is among the wealthiest persons in the world, according to Forbes, with an estimated net worth of $206 billion.
The amount that each director must return is not specified in the settlement; only the total amount is.
A requirement for shareholder approval for director compensation was one of the governance changes included in the settlement.
