Tesla Board Members to Repay $735 Million to Resolve Allegations of Excessive Compensation

In what is being hailed as one of the largest shareholder settlements of its kind, Tesla Inc's board members have agreed to return $735 million to the company to resolve allegations of excessive self-payment. The settlement, detailed in a court filing in Delaware on Monday, brings an end to a lawsuit filed in 2020 by a retirement fund that holds Tesla stock, raising concerns about stock options granted to the company's directors starting from June 2017.

Allegations of Unfair Compensation

The directors were accused of granting themselves unfair and excessive compensation through the receipt of approximately 11 million stock options between 2017 and 2020, allegedly far surpassing the standard for a corporate board.

The lawsuit was filed by the Police and Fire Retirement System of the City of Detroit in 2020, and the settlement amount will be paid to Tesla for the benefit of the company.

Return of Stock Options

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

Tesla has refrained from commenting on the matter, while the directors have settled to mitigate the risk of litigation for both themselves and the company. They maintain that they acted in good faith and in the best interests of Tesla's shareholders.

Exclusion of Elon Musk's Compensation

It is worth mentioning that the resolution does not have any effect on Elon Musk's $56 billion remuneration plan, which is presently being examined in a distinct legal case that was brought to trial last year.

Tesla's Defense and Compensation Method Revision

Tesla defended itself against the lawsuit by highlighting the company's exceptional growth, which led to a tenfold increase in its stock price. With the surge in stock value, the worth of stock options awarded to the directors, including Musk, rose significantly. Tesla claimed that the utilization of stock options aimed to align the directors' incentives with the interests of investors.

As part of the settlement, the directors have also agreed not to receive any compensation in 2021, 2022, and 2023. Additionally, the board will revise the method for determining compensation.

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