Tesla directors have agreed to return $735 million to the company in one of the largest shareholder settlements of its kind, according to a filing in a Delaware court.
The settlement resolves a lawsuit filed in 2020 by a retirement fund that holds Tesla stock, which challenged stock options granted to the directors starting in June 2017.
The settlement specifically pertains to the directors’ compensation and does not impact Elon Musk’s $56 billion compensation package, which is subject to a separate lawsuit.
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The directors, including Larry Ellison, co-founder of Oracle, will return the equivalent value of 3.1 million Tesla stock options.
Tesla did not provide an official comment, but the directors said they acted in good faith and settled to eliminate litigation risks for themselves and the company.
They were accused of awarding themselves unfair and excessive pay in the form of approximately 11 million stock options from 2017 to 2020, far exceeding industry norms.
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The case was brought by the Police and Fire Retirement System of the City of Detroit, and the settlement will benefit Tesla as a derivative lawsuit.
It represents one of the largest-ever settlements in a derivative case in the court of chancery, a significant venue for shareholder litigation.
Tesla and Musk have a history of vigorously contesting lawsuits, with Musk successfully navigating several high-profile legal battles in the past.
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As part of the settlement, the directors agreed not to receive any compensation for 2021, 2022, and 2023.
Furthermore, the board will revise the approach to determining compensation.
Tesla defended itself by highlighting its unprecedented growth, which caused the company’s stock price to surge dramatically.
Along with the stock value increase, the stock options awarded to the directors and Musk experienced a sharp rise in value.
The company argued that these stock options were used to align the directors’ incentives with those of the investors.
