Tesla Directors Agree to $735 Million Settlement Over Allegations of Excessive Compensation
Tesla Directors Settle Lawsuit by Returning $735 Million to Company Amid Claims of Excessive Compensation
chandni
In a recent court filing, Tesla's directors have agreed to a settlement of $735 million to address allegations made by shareholders regarding their purportedly inflated compensation. The resolution brings an end to a lawsuit initiated in 2020 by the Police and Fire Retirement System of the City of Detroit, which raised concerns about the stock options granted to Tesla directors, including CEO Elon Musk, his brother Kimbal Musk, and Oracle co-founder Larry Ellison, beginning in June 2017.
Additionally, Elon Musk himself faces separate scrutiny concerning his $56 billion compensation package, which underwent trial proceedings last year in response to a lawsuit filed by shareholder Richard Tornetta. Tornetta sought to revoke Musk's 2018 pay agreement, asserting that it constituted "the largest compensation grant in human history" and was undeservedly bestowed upon Musk, whom he referred to as a "part-time CEO," without requiring his full dedication to Tesla.
A ruling on Musk's case is anticipated in the near future.
The directors of Tesla were accused of granting approximately 11 million stock options between 2017 and 2020, which shareholders argued greatly exceeded the norm for corporate boards. According to the court filing and Reuters reports, the directors have agreed to return the equivalent value of 3.1 million Tesla stock options.
While Tesla maintained that its directors acted in the best interests of the company's stockholders and in good faith, they decided to settle to mitigate the risk of litigation against both themselves and the company. Tesla defended its position by emphasizing the unprecedented growth experienced by the company, resulting in a tenfold increase in its stock price and a subsequent rise in the value of stock options awarded to directors and Musk. The company stated that stock options were employed to align the incentives of the directors with the goals of investors.
As part of the settlement, the directors have also agreed not to receive compensation for the years 2021, 2022, and 2023. Furthermore, the board will need to revise the process for determining compensation, a development that shareholders can anticipate during the next shareholder meeting.
This settlement, one of the largest ever reached for a similar case in the Court of Chancery, will be paid directly to Tesla for the benefit of the company.
