Tesla board members to repay almost $1 billion in settlement over extravagant compensation

A Delaware judge has given the green light to a $1 billion settlement in a lawsuit filed by Tesla shareholders against the company’s board members. Chancellor Kathaleen McCormick has officially approved the settlement, which mandates that board members return stock and cash, as well as relinquish stock options granted to them between 2017 and 2023.

The Police and Fire Retirement System of the City of Detroit filed a lawsuit on behalf of Tesla shareholders, claiming that Tesla board members granted themselves exorbitant compensation. In contrast to the average annual compensation of around $300,000 for S&P 500 board members, Tesla’s board members were accused of receiving hundreds of millions of dollars during the specified time frame.

The board members have agreed to the following terms as part of the settlement:

• • Return $277 million in cash to Tesla.
  • Surrender $459 million worth of stock options.
  • Forgo $184 million in stock options granted from 2021 to 2023.

The case involves several board members, including Kimbal Musk, who is Elon Musk’s brother. Other notable board members include Larry Ellison, the Co-founder of Oracle Corp., Brad Buss, Ira Ehrenpreis, Antonio Gracias, Stephen Jurvetson, Linda Johnson Rice, Kathleen Wilson-Thompson, and Hiromichi Mizuno. Many of these individuals have close associations with Musk or have financial connections to him outside of Tesla.

Furthermore, the lawsuit contended that the board members had limited involvement in Tesla’s achievements yet received exorbitant compensation. A perceptive commentator on the matter succinctly pointed out, “Even if you acknowledge the immense talent of the executive team in driving Tesla’s worth, the board’s responsibilities, such as overseeing the audit committee, do not directly impact the company’s valuation.”

Tesla and its board have reached a settlement, as reported in July 2023. It is important to note that this settlement does not include an admission of wrongdoing by Tesla or its board.

Implications for Elon Musk

Elon Musk’s involvement in a separate case has come to light, despite not receiving any compensation as a board member. This case revolves around his CEO compensation package, which was valued at a staggering $55 billion. Chancellor McCormick, however, made the decision to rescind this package, as it was deemed to not have been negotiated or presented to shareholders in good faith. What makes this situation even more interesting is the fact that the very same board members who were accused of receiving excessive compensation were the ones responsible for negotiating Musk’s CEO package.

The settlement of this case highlights the ongoing scrutiny surrounding corporate governance and executive compensation, particularly in well-known companies like Tesla. Although Tesla’s executive team has played a crucial role in the company’s remarkable success through their vision and execution, the agreement raises concerns regarding the fairness and transparency of their rewards.

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