Tesla Directors to Return $919M in Historic Pay Settlement

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Facts

  • Tesla board members, including Chair Robyn Denholm and James Murdoch, received court approval for a $919M settlement requiring them to return compensation to resolve allegations of excessive pay.[1][2]
  • The settlement requires the directors to return $277M in cash and $459M in stock options, and forfeit additional options worth $184M for 2021-2023, with none of the settlements covered by insurance.[1][3]
  • Chancellor Kathaleen McCormick approved the settlement, which resolves a 2020 lawsuit filed by the Police and Fire Retirement System of the City of Detroit challenging director compensation from 2017 to 2020.[1][4]
  • The settlement — reportedly the second-largest ever in Delaware's Court of Chancery — also includes $176M in fees for the three law firms that brought the case and mandates new governance changes requiring shareholder approval for future director compensation.[1][5]
  • The compensation in question revolves around the directors' stock options, which surged to hundreds of millions of dollars as Tesla's stock increased ten-fold. Typical board member pay, as the average total compensation for S&P 500 company directors, is $327,096 in 2024.[1]
  • Meanwhile, the settlement did not see any of the directors admit to misconduct.[3]

Sources: [1]CNN, [2]TechCrunch, [3]Reuters, [4]Washington Times and [5]Fortune.

Narratives

  • Narrative A, as provided by Benzinga and The National News. The compensation packages were justified given Tesla's extraordinary performance, with the stock value increasing tenfold during the period in question, reflecting the directors' contributions to the company's success. Tesla should consider contesting this decision to protect its ability to reward success.
  • Narrative B, as provided by CNN and Fortune. The excessive compensation represented a breach of fiduciary duty, far surpassing industry standards and demonstrating poor corporate governance. It is clear that Tesla's board overpayed itself, and it is only right that the directors are required to return this money.