Tesla directors agree to repay $735 million in overpayment settlement

Jul 18, 2023, 4:23 PM UTC
2 mins read
Tesla directors agree to repay $735 million in overpayment settlement
Tesla's Store and Service Center located in Hannover, Germany. (Photo by Maxim on Unsplash)

Tesla, several current and former members of the board of directors, including Elon Musk and Larry Ellison, have agreed to return a staggering $735 million, Reuters reported. The settlement comes as a resolution to a lawsuit filed by the Police and Fire Retirement System of the City of Detroit, alleging excessive compensation through stock options. With this agreement, Tesla aims to put an end to the controversy surrounding the compensation of its board members. Additionally, the directors have decided to forgo compensation for the years 2021, 2022, and 2023, while implementing changes to the compensation structure moving forward.

The legal saga commenced in 2020 when the retirement fund filed a lawsuit challenging the stock options granted to Tesla’s board from 2017 onwards. The allegations centered on the claim that the compensation awarded to the board was vastly disproportionate, exceeding customary limits for a corporate board. While this case is distinct from the lawsuit filed by shareholders contesting Elon Musk’s $56 billion compensation package, it adds to the mounting legal challenges faced by Tesla’s leadership.

After prolonged negotiations, the parties reached an agreement, resulting in the return of $735 million by Tesla’s directors. The settlement, which marks the largest ever awarded by Delaware’s Court of Chancery in a derivative lawsuit, will be repaid to the company. The magnitude of this settlement emphasizes the seriousness of the allegations brought against the board members and underscores the need for corrective measures to restore confidence among investors and shareholders.

Tesla defended its compensation practices by asserting that the stock options were a means to align the interests of directors with the company’s investors. By offering stock options, the board aimed to provide an incentive for directors to prioritize the company’s long-term growth and shareholder value. While Tesla has yet to comment on the settlement, court documents indicated that the company agreed to resolve the matter to mitigate the potential risk of future litigation.

Separately, Elon Musk faces a legal battle to defend his $56 billion pay package. The lawsuit, initiated by shareholder Richard Tornette, challenges the compensation granted to Musk, which he claims to be the largest in history. Tornette argues that the package was awarded even though Musk did not exclusively focus on Tesla. In 2020, Musk received the first installment of $700 million as part of this controversial compensation agreement.

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