Tesla Directors to Refund $375 Million To Settle Shareholder Lawsuit

Tesla Directors to Refund $375 Million To Settle Shareholder Lawsuit

Tesla Inc. directors, including Chief Executive Officer (CEO) Elon Musk, agreed to return more than $735 million in stock awards and cash to settle an investor lawsuit accusing board members of improperly giving themselves massive compensation packages.

The settlement, which was filed in the Delaware Chancery Court, mentioned that the the board members have made a deal to return $735 million to the electric vehicle company, including $3.1 million in stock options. The directors have also agreed to enact corporate-governance changes to how board members' compensation issues are assessed.

The settlement agreement resolves a lawsuit filed in 2020 alleging Tesla’s directors ‘breached their fiduciary duties by awarding themselves excessive and unfair compensation.’

The case was brought by the Police and Fire Retirement System of the City of Detroit in 2020 and the settlement is paid to Tesla to benefit the company, a type of case known as a derivative lawsuit. The settlement is one of the largest ever for a derivative case in the Court of Chancery, a major venue for shareholder litigation.

The directors, including Tesla CEO Elon Musk, Oracle Corp. Co-founder Larry Ellison and Musk's brother, Kimbal Musk, awarded themselves roughly $11 million worth of stock options from 2017 to 2020 that the allegedly grossly exceeded norms for a corporate board.

The directors defended their actions during the lawsuit, but ultimately chose to settle to ‘eliminate the uncertainty, risk, burden, and expense of further litigation.’ The directors further stated that they had acted in good faith and in the best interests of Tesla stockholders.

Before the settlement is finalized, Delaware Chancery Court Chief Judge Kathaleen St. Jude McCormick must approve the directors’ deal.

A separate lawsuit challenging Tesla Co-founder Elon Musk’s $56 billion compensation package is also ongoing. In the complaint, shareholders alleged that conflicts of interest and improper disclosures involving performance goals influenced Musk’s pay package, one of the largest in U.S. corporate history.