Tesla directors agree to return $735m to settle claims they were grossly overpaid

Tesla directors, including its CEO Elon Musk, who were recently accused of earning excessive remuneration, have negotiated a $735 million settlement with the corporation. The Detroit Police and Fire Retirement System filed the case in 2020, contesting the validity of stock options granted to Tesla's board of directors from 2017 to 2020, totalling around 11 million options.

Shareholders alleged that the directors issued themselves an excessive quantity of stock options for a business board. As part of the agreement, board members, including Oracle co-founder Larry Ellison, agreed to refund the cash value of 3.1 million Tesla stock options. This sizeable settlement represents a significant moment in the realm of corporate governance and the handling of derivative actions by the Court of Chancery.

Elon Musk’s separate $56 billion pay package, currently facing challenges in another lawsuit that went to trial recently, remains unaffected by this settlement, with a decision expected shortly.

Musk and Tesla are no strangers to legal battles, having emerged victorious in three previous trials, including a defamation case and allegations of securities law violations. Shareholders had accused Musk of pressuring Tesla to acquire SolarCity in yet another lawsuit.

In addition to returning the cash value of stock options, the board members have agreed to forego compensation for the years 2021, 2022, and 2023 as part of the settlement. They will also reevaluate their approach to compensation in the future.

Tesla had countered the lawsuit by attributing the company’s stock price increase to its exceptional growth and argued that the stock options program aimed to align the interests of directors with those of shareholders.

The settlement funds will be directed to Tesla without any intermediaries. By reaching this agreement, the board members sought to avoid further legal repercussions and demonstrate their commitment to acting in the best interests of the company’s stockholders. The settlement amount is one of the largest in derivative cases in the history of the Court of Chancery.

This resolution demonstrates Tesla and Elon Musk's determination to establish common ground on corporate governance issues, emphasising their commitment to shareholder well-being and willingness to accept accountability for their actions.

To summarise, Tesla's senior executives will pay $735 million to resolve shareholder concerns over exorbitant remuneration. The deal ends the 2020 lawsuit filed by a pension fund that owns Tesla stock, and the monies will be used to support the firm directly. The board members' decision to settle aims to avoid further legal conflicts and marks a watershed moment in corporate governance and how the Court of Chancery handles derivative cases.