A major court filing on Monday revealed that Tesla’s directors have agreed to return a whopping $735 million to the company to resolve claims from shareholders that they were excessively overpaid. The settlement brings an end to a 2020 lawsuit filed by the Police and Fire Retirement System of the City of Detroit, which holds Tesla stock. The retirement fund had raised concerns about the stock options granted to Tesla directors, including CEO Elon Musk, his brother Kimbal Musk, and Oracle co-founder Larry Ellison, starting in June 2017.
The scrutiny on Musk doesn’t end there, as he faces a separate lawsuit challenging his own $56 billion compensation package. Shareholder Richard Tornetta filed suit against Tesla in 2019 seeking to rescind Musk’s pay deal from 2018. Tornetta argues that the package, which he describes as “the largest compensation grant in human history,” is unjustly awarded to Musk, whom he refers to as a “part-time CEO,” without requiring him to focus entirely on Tesla. A ruling on this case is expected imminently.
In the recently settled lawsuit, Tesla’s directors were accused of granting themselves approximately 11 million stock options between 2017 and 2020, a number that shareholders deemed to be grossly excessive for corporate boards. As part of the settlement, the directors have agreed to return the equivalent value of 3.1 million Tesla stock options, as reported by Reuters.
Tesla, on the other hand, argued that its directors acted in good faith and in the best interests of the company’s stockholders. The electric vehicle (EV) maker asserted that its unprecedented growth, which resulted in Tesla’s stock price surging 10 times over, justified the increase in the value of stock options awarded to the directors and Musk. According to Tesla, these stock options were used to align the incentives of the directors with the goals of the investors.
Besides the massive monetary return, the settlement also includes some noteworthy provisions. Tesla’s directors have agreed not to receive compensation for the years 2021, 2022, and 2023. Furthermore, the board will have to reevaluate the way compensation is determined, a crucial aspect that shareholders will be closely observing at the next shareholder meeting.
This settlement is being hailed as one of the largest ever for a similar case in the Court of Chancery. The funds will be paid directly to Tesla, benefiting the company and putting this contentious issue to rest. As Tesla continues to dominate the EV market, these developments serve as a reminder of the complexities and scrutiny that come with its growth and success in the industry.
