Elon Musk and other Tesla board members have agreed to return over $735 million in stock awards and cash as part of a settlement of a lawsuit over the board’s compensation.
In 2020, the Police and Fire Retirement System of Detroit, a Tesla shareholder, decided to sue Tesla over what it believed to be excessive board compensation that had been improperly awarded since 2017.
The defendants include Elon Musk, CEO and board member at Tesla, his brother Kimbal Musk, media mogul James Murdoch, billionaire Larry Ellison, and virtually every Tesla board member of the last six years.
They have received hundreds of millions of dollars worth of stock options over the years. To be fair, much of the value of those stock options has been due to the rise in the value of Tesla’s stock over those years.
In a new filing with the court last week, Tesla has agreed with the plaintiff on a massive settlement that would see board members return over $735 million worth of stock awards and cash.
As part of the settlement, Tesla directors don’t admit to any wrongdoing and settle “to eliminate the uncertainty, risk, burden, and expense of further litigation.”
The settlement is significant.
The directors agree to forfeit all compensation from 2021 to 2023. It means canceling existing stock options, returning stocks from options that were exercised, and even returning cash from stocks that were sold after the options were exercised.
It adds up to $458 million worth of stocks and $276 million in cash being returned to Tesla.
On top of the stocks and money being returned, Tesla’s board has also agreed to hire a new outside consultant to look into its board compensation.
The judge overseeing the case, Chancellor Kathaleen St. J. McCormick, needs to approve the settlement before it becomes official.
Interestingly, McCormick is also presiding over another compensation lawsuit related to Tesla, but this one is specifically about Elon Musk’s 2018 CEO compensation plan, which could be worth as much as $55 billion.
Musk refused to settle this lawsuit, and the judge is expected to rule on it soon.
Electrek’s Take
That’s quite a settlement. I’ve tried to find out exactly how much each director is going to give back, but I couldn’t find the details yet.
Top comment by Bernard Moret
In using the principle we must also take into account the facts. The Tesla board has not done much of anything that we know of -- they have not curbed Musk's tendency to utter risky or offensive statements, they have not had a hand in setting goals or policy, etc. They are all family or pals of Musk and simply expected to approve every initiative. For what they have (not) done, their compensation has been excessive.
Whether Musk's compensation has also been excessive is a very different issue (and a different lawsuit) -- he is undeniably the prime mover behind Tesla's success and his contract set goals that almost everyone considered unreachable. So he reached the goals and, for sure, 50 billion is outrageous under any circumstances, but it is actually peanuts when compared to what Tesla has become thanks to him. I say he earned it. In any case, he is going to need those 50 billion as he finishes bankrupting Twitter...
There are 12 defendants in total, as Tesla has cycled through a few board members over those years.
To be honest, I’m not sure who is in the right here. Yes, that’s a lot of money for what is basically a part-time job. However, the board members’ jobs are to look after the interest of shareholders, and the shareholders want to see the stock’s value increase.
It has increased quite a bit – over 1000% since 2017. You can argue whether or not they are doing a good job, but you can’t argue with the results.
Either way, if it is approved – and it sounds like it will be – the settlement should have a major impact on the quarter during which it is approved, as Tesla will receive a lot of shares and cash back.
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