Tesla\’s directors, led by Elon Musk, have agreed to settle a lawsuit filed by shareholders by returning $735 million, equivalent to 3.1 million Tesla stock options, back to the company. As part of the settlement, the directors will forego any compensation for the years 2021, 2022, and 2023. Additionally, the board will undergo changes in how compensation is determined going forward.
The lawsuit, brought by the Police and Fire Retirement System of the City of Detroit in 2020, alleged that the directors exceeded corporate board norms by awarding themselves approximately 11 million stock options between 2017 and 2020. Tesla had argued that stock options were necessary to incentivize the directors and align their interests with those of the investors, citing the company\’s unprecedented growth and subsequent rise in stock value.
It\’s important to note that the settlement reached by Tesla\’s directors will not impact Elon Musk\’s $56 billion compensation package. Shareholders had previously challenged Musk\’s compensation package in a separate case, and a decision on that matter is expected to be announced soon.
The lawsuit against Tesla\’s directors is classified as a derivative lawsuit and is considered one of the largest-ever victories for a derivative case in the court of Chancery.
Elon Musk and Tesla have faced various legal challenges in the past, but they have also demonstrated a track record of successfully defending against lawsuits. Recently, Musk won a lawsuit brought by Tesla shareholders who accused him of violating securities laws and using Tesla\’s resources to acquire SolarCity in 2016 to protect his investment.
