Tesla directors pay $735M to settle claims they overpaid themselves

Tesla’s directors will return $735 million to the company to settle claims from shareholders that they excessively overpaid themselves, according to a Monday court filing.

The settlement concludes a 2020 lawsuit from a retirement fund that holds Tesla stock. The Police and Fire Retirement System of the City of Detroit had criticized stock options granted to Tesla directors — including CEO Elon Musk, his brother Kimbal Musk and Oracle co-founder Larry Ellison — starting in June 2017.

Musk is also separately under scrutiny for his own $56 billion compensation package, which is facing its own lawsuit that went to trial last year. Shareholder Richard Tornetta filed suit against Tesla in 2019 to rescind Musk’s 2018 pay deal. Tornetta claims the package is “the largest compensation grant in human history” and it is unjustly paid to Musk — whom he called a “part-time CEO” — without demanding that the executive focus entirely on Tesla.

A ruling is soon expected on Musk’s case.

Tesla’s directors were accused of awarding themselves around 11 million stock options from 2017 to 2020, which shareholders say is grossly in excess of the standard for corporate boards. They agreed to return the equivalent value of 3.1 million Tesla stock options, the filing shows and Reuters reports.

Tesla argued that its directors acted in good faith and in the best interests of Tesla stockholders, but settled to avoid risk of litigation against themselves and the company. The EV maker defended itself by saying the company went through unprecedented growth, which shot Tesla’s stock price up 10x, which caused the stock options award to directors and Musk to rise in value. The company said it used stock options to ensure the directors’ incentives lined up with investor goals.

As part of the deal, the directors also agreed to not receive compensation for 2021, 2022 and 2023. The board will also have to change the way compensation is determined — something to look out for at the next shareholder meeting.

The settlement, one of the largest ever for a similar case in the Court of Chancery, will be paid directly to Tesla to benefit the company.

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