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Tesla Directors Settle Shareholder Claims for $735 Million in Landmark Lawsuit, Agree to Compensation Revisions

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Tesla’s directors have agreed to settle claims from shareholders of excessive overpayment and will return $735 million to the company, according to a court filing in Delaware on Monday, making it one of the largest shareholder settlements of its kind, Reuters reported.

The settlement pertains to a lawsuit filed in 2020 by the Police and Fire Retirement System of the City of Detroit, a retirement fund holding Tesla stock, which began to challenge the stock options granted to Tesla directors from 2017 to 2020.

The directors — including CEO Elon Musk, his brother Kimbal Musk and Oracle co-founder Larry Ellison — are accused of granting themselves compensation of approximately 11 million stock options over three years, which is allegedly far beyond the norm for corporate boards.

The case is a derivative lawsuit, where a shareholder sues on behalf of the company, and the settlement amount is one of the largest ever of its kind filed in Delaware’s Court of Chancery — a prime hub for shareholder litigation.

As part of the settlement, the directors also agreed not to receive any compensation for the years 2021, 2022, and 2023, and the board will revise its compensation determination process.

Related: Elon Musk Accused of Violating Building Codes and Failing to Pay Severance, Lawsuit Claims

The directors maintain that they acted in good faith and for the best interests of Tesla’s stockholders but agreed to settle to avoid the risk of litigation, according to the filing.

The settlement is one of the largest-ever derivative cases in the Court of Chancery, a prominent venue for shareholder litigation.

In response to the lawsuit, Tesla argued that the company experienced unprecedented growth, leading to a tenfold increase in its stock price, per Reuters, which, in turn, caused the value of stock options awarded to the directors and Musk to rise significantly. Tesla contended that the stock options were used to align the directors’ incentives with investor goals.

The current settlement does not affect Elon Musk’s $56 billion compensation package, which is the subject of a separate lawsuit and awaiting a ruling. The complaint, filed by a Tesla shareholder in 2019, claims that Musk’s board-approved compensation package from 2018 was excessive and breached the board’s duties to shareholders.

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