According to a court document filed on Monday, Tesla’s directors will reimburse the company $735 million to resolve shareholder accusations that they overly compensated themselves.
The agreement ends a lawsuit filed in 2020 by a retirement fund that owns Tesla stock. Beginning in June 2017, the Detroit Police and Fire Retirement System questioned stock options given to Tesla directors, including CEO Elon Musk, his brother Kimbal Musk, and co-founder of Oracle, Larry Ellison.
Separately, Musk is being questioned about his own $56 billion compensation plan, which is the subject of a separate case that went to trial last year. Tesla was sued in 2019 by shareholder Richard Tornetta to void Musk’s 2018 salary agreement. Tornetta asserts that Musk’s salary package is “the largest compensation grant in human history” and that it was unfairly given to the executive, whom he called a “part-time CEO,” without requiring Musk to devote all of his time to Tesla.
A decision in Musk’s case is anticipated soon.
Tesla’s directors are accused of giving themselves around 11 million stock options between 2017 and 2020, which, according to shareholders, is significantly more than what is expected of corporate boards. According to the filing and Reuters, they agreed to refund the equivalent of 3.1 million Tesla stock options.
Tesla said that its directors behaved honestly and in the best interests of Tesla stockholders, yet they reached a settlement to prevent legal action against them and the business. The EV manufacturer defended itself by claiming that it had extraordinary growth, which drove Tesla’s stock price up 10x and increased the value of the stock options granted to directors and Musk. The company claimed that it used stock options to ensure that the directors’ incentives matched investor objectives.
The directors also consented to forego salary in 2021, 2022, and 2023 as part of the agreement. The board will likely need to alter how pay is calculated at the following shareholder meeting.
The Court of Chancery’s largest-ever settlement in a case of this nature will be paid directly to Tesla for its benefit.
