Elon Musk Can’t Pay Twitter Severance, But He And The Tesla Board Just Agreed To Pay Back $735 Million In Excess Compensation

Apparently, Elon Musk has little to no interest in paying ex-employees the $500 million in severance he owes them (which was included in the purchase agreement he signed, but which it’s unclear if he ever read), but he (and the close friends and family he stuffed the Tesla board with) need to pay back $735 million in excess compensation that Tesla paid them.

This is the result of a settlement in a years long case, initially filed by the Police and Fire Retirement System of Detroit, which was a Tesla shareholder, which sued, claiming that the board was a bunch of Musk cronies who overpaid themselves. And while the case has gone on for years, it’s now reached the settlement stage, with Musk and the board saying they’ll pay back a bunch of money, and limit their own compensation for a few years as well.

Using the valuation methods set forth in this Stipulation, Director Defendants shall deliver to Tesla the value of the Settlement Options, which is equal to $735,266,505 (seven hundred thirty-five million, two hundred sixty-six thousand, five hundred five U.S. Dollars) (“Settlement Option Amount”). The Settlement Option Amount consists of (i) $458,649,785 in Returned Options, using the valuation method for Returned Options set forth in Section 2.3 of this Stipulation, and (ii) $276,616,720 in Returned Cash and/or Returned Stock, combined, using the valuation methods for Returned Cash and Returned Stock set forth in Sections 2.4 and 2.5, respectively, of this Stipulation. In the event that Director Defendants return a different combination of (i) Returned Options and (ii) Returned Cash and/or Returned Stock than what is reflected in this Section 2.6, such adjustment shall not decrease the Settlement Option Amount, and Director Defendants shall inform the Court of any such adjustments no later than five (5) Business Days prior to the Settlement Hearing.

The money just goes right back to Tesla, so it’s not like this has a big impact directly on Musk, but it’s still a fair bit of cash. Of course, I do wonder how the directors implicated here will split the bill (since they’re “jointly and severally” they are all responsible for paying up the whole amount, and no one can walk away saying the others need to pay). But, of course, between just Musk and Larry Ellison they can pay the money back.

The settlement also says that compensation for the next few years should be voted on by all shareholders, rather than just the board rewarding itself:

On an annual basis, Tesla shall submit the proposed annual compensation to be paid to Non-Employee Directors to an approval vote of the majority of Unaffiliated Tesla Stockholders present in person or represented by proxy and entitled to vote on such decision. For purposes of this Stipulation, “Unaffiliated Tesla Stockholders” means all Tesla stockholders of record other than (i) Defendants and (ii) Other Tesla Directors (but only while such Other Tesla Directors serve on the Tesla Board). For the avoidance of doubt, Defendants and Other Tesla Directors (but only while such Other Tesla Directors serve on the Tesla Board) shall (with respect to any and all shares over which they hold beneficial ownership, as that term is defined in 17 CFR § 240.13d-3(a)) abstain from voting in their capacity as stockholders on the votes required by this Section and shall not be counted as shares present or entitled to vote for purposes of determining the majority.

It also says that Tesla’s board will also lose out on 2021 through 2023 compensation.

Director Defendants shall forego permanently the 2021 and 2022 Foregone Options (to the extent Director Defendants served on the Tesla Board during such period) and shall not hereafter receive any compensation for Tesla Board service for 2021 or 2022. The Current Director Defendants shall also forego permanently any compensation for Tesla Board service for 2023.

On an unrelated note, is Elon still the only Board member for Twitter?