Dive Brief:
- A Delaware Chancery Court has approved a deal in which Tesla’s directors will return as much as $919 million to the electric automaker to settle a shareholder complaint that board members overpaid themselves from 2017 to 2020, a period when Tesla’s market capitalization rose dramatically.
- Chancellor Kathaleen McCormick formally approved the settlement, reached in June 2023, on Wednesday. She also approved $176.2 million in legal fees to three law firms that filed the case on a contingency basis for the The Police & Fire Retirement System of the City of Detroit. That is the fourth-largest fee in Delaware shareholder litigation history, according to Reuters.
- The settlement – which includes Tesla CEO Elon Musk and his brother, Kimbal Musk; Oracle co-founder Larry Ellison; and James Murdoch, the former CEO of 21st Century Fox – requires directors to return $735 million of cash, stock and options and to forego stock option compensation from 2021-2023 worth as much as $184 million.
Dive Insight:
Elon Musk did not receive Tesla compensation as a director but has been involved in a long-running dispute in McCormick’s court – which he has thus far lost – over a $56 billion pay package Tesla directors awarded him. On Wednesday, Musk appealed McCormick’s second ruling on the matter to the Delaware Supreme Court.
About $459 million of the compensation that 12 directors will disgorge was awarded as stock options. The settlement also requires Tesla to implement governance reforms for five years on non-employee director compensation. These include annual reviews of directors’ payments, the use of a compensation consultant and annual shareholder approval votes on board members’ compensation.
The settlement covers a collective amount for the board and does not specify individual amounts for the directors.
“We are very pleased with the Chancellor’s ruling,” Akerman LLP attorney Andrew Dupre, one of the plaintiff’s counsel, wrote Thursday in an email to Legal Dive.
“This settlement marks a significant step forward for accountability and fairness in corporate compensation practices,” Bleichmar Fonti & Auld, one of the plaintiffs’ counsel, said in a statement Wednesday on its website.
McCormick also awarded $176 million in fees and expenses to the trio of law firms that brought the case on a contingency basis. The firms had requested around $230.6 million in fees and litigation costs, or roughly 25% of the $919 million settlement amount.
