TLDR
- Tesla directors to pay $919M settlement over excess compensation claims
- Settlement includes $277M cash return, $459M in stock options return
- Board members must forgo 2021-23 stock options worth $184M
- Judge Kathaleen McCormick approved the settlement
- Key directors involved include Chair Robyn Denholm and James Murdoch
A Delaware court has approved a settlement requiring Tesla directors to return $919 million in compensation to resolve allegations of excessive pay. The agreement, approved by Chancellor Kathaleen McCormick, marks one of the largest settlements ever reached in Delaware’s Court of Chancery.
The settlement breaks down into three main components: $277 million in cash returns, $459 million in stock options returns, and the forfeiture of stock options for 2021-2023 valued at $184 million. Notable board members involved in the settlement include Tesla Chair Robyn Denholm and director James Murdoch.
According to court filings, the settlement was not covered by insurance, meaning the board members will personally bear the financial responsibility. This detail adds weight to the resolution and distinguishes it from many corporate settlements where insurance providers cover the costs.
The case originated from shareholder allegations that Tesla directors had awarded themselves excessive compensation. The legal proceedings took place in Delaware’s Court of Chancery, which serves as the primary forum for shareholder litigation in the United States.
Andrew Dupre, representing the shareholders, expressed satisfaction with the outcome. “We’re very pleased with the chancellor’s ruling,” Dupre told Reuters following the announcement. The legal team noted that this settlement ranks as the second-largest ever achieved in the Delaware Court of Chancery.
The directors involved in the settlement have not admitted to any wrongdoing as part of the agreement. This standard legal practice allows the parties to resolve the dispute while maintaining their position that no improper actions occurred.
The settlement’s approval came through a telephonic hearing, where Judge McCormick delivered her ruling. Both the plaintiffs’ attorney and a shareholder who had objected to the deal were present for the announcement.
“Substantial Return” to Treasury
The cash component of $277 million represents a substantial immediate return to Tesla’s corporate treasury. This amount alone would rank among the larger corporate settlements in recent years.
The stock options return of $459 million forms the largest portion of the settlement. This component reflects the value of previously awarded options that the directors must now surrender.
The forward-looking aspect of the settlement includes the directors forgoing stock options for the years 2021-2023, valued at $184 million. This provision prevents future compensation that had been planned but not yet awarded.
Tesla’s board structure and compensation practices have drawn attention from shareholders and corporate governance experts in recent years. This settlement addresses specific concerns about director compensation levels and oversight.
The resolution provides a clear framework for returning value to Tesla and its shareholders. The combination of immediate cash returns and future compensation restrictions creates a comprehensive remedy for the alleged overpayment issues.
The Delaware Court of Chancery’s role in this case reflects its position as the nation’s leading forum for corporate law disputes. The court’s approval adds legitimacy to the settlement terms and enforcement mechanism.
Judge McCormick’s approval followed careful consideration of the settlement terms and their fairness to all parties involved. The decision took into account both the size of the settlement and its structure.
The final settlement details were reached after negotiations between the directors and shareholder representatives. The approved agreement represents the culmination of these discussions and legal proceedings.
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