Tesla directors settle lawsuit for $735 million over excessive pay

• Tesla directors have settled a lawsuit for $735 million over excessive pay.
• The settlement does not affect Elon Musk’s $56 billion compensation package.
• Tesla didn’t respond to a comment request, but directors claim they are acting in good faith for the company’s benefit.

The settlement resolves a 2020 lawsuit brought by a retirement fund that holds Tesla stock, which challenged stock options granted to Tesla directors in June 2017.

The settlement does not affect Elon Musk’s $56 billion compensation package, which is currently under challenge by shareholders in a separate lawsuit that went to trial last year. A ruling on the Musk case is expected soon.

In a court filing, the directors, including Oracle co-founder Larry Ellison, have agreed to return the equivalent value of 3.1 million Tesla stock options.

Tesla did not provide a response to a comment request. However, the directors stated that they acted in good faith and in the best interests of Tesla stockholders. They chose to settle to avoid the risk of litigation for both themselves and the company, as mentioned in a court filing.

The directors were alleged to have granted themselves approximately 11 million stock options between 2017 and 2020, which were considered unfair and excessive and far beyond standard norms for a corporate board.

The Police and Fire Retirement System of the City of Detroit filed the case in 2020, and the settlement amount is paid to Tesla for the company’s benefit, making it a derivative lawsuit. This settlement stands as one of the largest ever in the Court of Chancery, a significant venue for shareholder litigation.

Tesla and Elon Musk are known for their tendency to contest legal battles. Musk has emerged victorious in various cases, including a defamation lawsuit, a lawsuit alleging securities law violations, and a shareholder lawsuit accusing him of pressuring Tesla to acquire SolarCity.

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As part of the settlement, the directors also consented to forgo any compensation for 2021, 2022, and 2023. Additionally, the board will implement changes in the way compensation is determined moving forward.

Tesla defended itself against the lawsuit by emphasizing the company’s remarkable growth, which resulted in a substantial tenfold increase in its stock price. Consequently, the value of stock options granted to both the directors and Elon Musk also experienced a significant rise.