Tesla Inc’s board of directors has agreed to return $735 in order to settle a lawsuit filed by the shareholders, settling allegations of excessive compensation, which is one of the largest shareholder settlements of its kind. The settlement stems from a lawsuit filed in 2020 by a retirement fund holding Tesla stock, challenging stock options granted to the directors between June 2017 and 2020.
Prominent figures like Oracle co-founder Larry Ellison are among the directors who have consented to give back the equivalent value of 3.1 million Tesla stock options. Despite acting in good faith and with Tesla’s best interests in mind, the directors opted for the settlement to mitigate the risk of further legal disputes.
The lawsuit accused the directors of awarding themselves an unfair and extravagant total of around 11 million stock options over the years, significantly surpassing standard corporate board compensation norms. The case was filed by the Police and Fire Retirement System of the City of Detroit and falls under the category of a derivative lawsuit, with the settlement benefiting Tesla as a whole.
This landmark settlement represents one of the largest ever for a derivative case in the court of chancery, a notable arena for shareholder-related litigations. While Tesla and its CEO Elon Musk are known for their resistance to lawsuits, this agreement signals a change in the board’s compensation practices.
As part of the settlement, the directors have also agreed to forgo any compensation in 2021, 2022, and 2023. Additionally, the board will be revising how compensation is determined going forward. Tesla had defended itself during the lawsuit, citing its unprecedented growth, which led to a tenfold increase in the company’s stock price. This surge in stock value also boosted the value of stock options awarded to the directors and Musk.
It’s worth noting that this settlement does not impact Elon Musk’s $56 billion compensation package, which is currently facing a separate lawsuit brought by shareholders. The outcome of that case is expected to be announced soon.
The directors’ decision to return $735 million to settle excessive compensation claims is a crucial development benefiting both Tesla’s shareholders and the company. The settlement removes the looming threat of legal battles and ensures a fair and transparent approach to future compensation. As Tesla continues to pursue its goals, both shareholders and the company can look forward to a promising future.
