WILMINGTON, Del. (CNN) - January 8, 2025 - In a significant legal ruling, Tesla directors, including Chair Robyn Denholm and James Murdoch, received court approval for a settlement totaling up to $919 million. This settlement mandates that the Tesla board members return funds to address allegations of self-overcompensation.

The agreement entails the directors returning approximately $277 million in cash and $459 million in stock options, while also forgoing stock options valued at $184 million for the years 2021 to 2023. Notably, the settlement is not covered by insurance, as highlighted in a recent court filing by the shareholders who initiated the lawsuit.

Chancellor Kathaleen McCormick, who presided over the case, confirmed her approval of the settlement during a telephonic hearing. “We’re very pleased with the chancellor’s ruling,” stated Andrew Dupre, an attorney for the shareholders, reflecting the sentiments from the legal team. This settlement is notably considered the second-largest in Delaware’s Court of Chancery, a key venue for shareholder litigation.

The directors involved, including Denholm and Murdoch, did not admit any wrongdoing in the settlement. Additionally, McCormick ruled to award $176 million in attorney fees to the three law firms that worked on a contingency basis for the plaintiffs. Tesla had originally sought to limit these fees to $64 million, making the awarded amount the fourth-largest in Delaware's shareholder litigation history.

This settlement stems from a lawsuit filed in 2020 by the Police and Fire Retirement System of the City of Detroit, which contested the compensation practices of Tesla directors from 2017 to 2020 as excessive. Over this period, the value of Tesla's stock soared, boosting the worth of the stock options awarded to directors significantly. In contrast, the average total compensation for directors at S&P 500 companies was about $327,096 in 2024, as reported by Spencer Stuart.

It's important to note that Elon Musk did not receive compensation as a board member, although a separate 2018 lawsuit challenged his significant $56 billion pay package as CEO, which was ordered to be rescinded last year by the same judge due to Musk's control over pay negotiations. In a testimony regarding her board tenure, Denholm described her Tesla gains as leading to “life-changing wealth,” accumulating around $280 million.

The settlement also outlines essential governance changes, including the necessity for shareholder approval for future director compensation. For more detailed information, you can read the complete articles from Reuters and CNN.