According to a Monday filing in a Delaware court, Tesla Inc’s (TSLA.O) directors will return $735 million to the company to settle claims that they grossly overpaid themselves in one of the largest shareholder settlements of its kind.
Tesla Inc’s Directors with $735 Million
The agreement resolves a lawsuit filed in 2020 by a retirement fund that owns Tesla stock and challenged stock options granted to the directors beginning in June 2017.
The settlement has no bearing on Elon Musk’s $56 billion compensation package, which is being challenged by shareholders in a separate lawsuit that went to trial last year. A decision in the Musk case is expected soon.
According to a court filing, the directors, which included Oracle co-founder Larry Ellison, agreed to return the equivalent value of 3.1 million stock options.
A request for comment from Tesla was not returned. According to a court filing, the directors acted in good faith and in the best interests of stockholders, but agreed to settle to avoid the risk of litigation for themselves and the company.
The directors were accused of awarding themselves unfair and excessive compensation in the form of approximately 11 million stock options from 2017 to 2020, which allegedly exceeded corporate board norms.
The Police and Fire Retirement System of the City of Detroit filed the lawsuit in 2020, and the settlement was paid to Tasla to benefit the company, a type of case known as a derivative lawsuit. The settlement is one of the largest ever in the Court of Chancery, a major venue for shareholder litigation.
Tesla and Musk have a history of battling lawsuits. Musk has won defamation lawsuits, securities law violations, and shareholder lawsuits accusing him of coercing Tesla into buying SolarCity at trial.
As part of the agreement, the directors agreed not to receive any compensation in 2021, 2022, or 2023, and the board agreed to change the way compensation is calculated.
Tesla had defended itself against the lawsuit by claiming that the company experienced almost unprecedented growth, with its stock price increasing tenfold.
Along with the increase in stock value, the value of stock options granted to the directors and Musk increased dramatically. Tesla claimed it used stock options to ensure directors’ incentives were aligned with investor goals.
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