Tesla’s directors have agreed to settle claims from shareholders of excessive overpayment and will return $735 million to the company, according to a court filing in Delaware on Monday, making it one of the largest shareholder settlements of its kind, Reuters reported.
The settlement pertains to a lawsuit filed in 2020 by the Police and Fire Retirement System of the City of Detroit, a retirement fund holding Tesla stock, which began to challenge the stock options granted to Tesla directors from 2017 to 2020.
The directors — including CEO Elon Musk, his brother Kimbal Musk and Oracle co-founder Larry Ellison — are accused of granting themselves compensation of approximately 11 million stock options over three years, which is allegedly far beyond the norm for corporate boards.
The case is a derivative lawsuit, where a shareholder sues on behalf of the company, and the settlement amount is one of the largest ever of its kind filed in Delaware’s Court of Chancery — a prime hub for shareholder litigation.
As part of the settlement, the directors also agreed not to receive any compensation for the years 2021, 2022, and 2023, and the board will revise its compensation determination process.
Related: Elon Musk Accused of Violating Building Codes and Failing to Pay Severance, Lawsuit Claims
The directors maintain that they acted in good faith and for the best interests of Tesla’s stockholders but agreed to settle to avoid the risk of litigation, according to the filing.
The settlement is one of the largest-ever derivative cases in the Court of Chancery, a prominent venue for shareholder litigation.
In response to the lawsuit, Tesla argued that the company experienced unprecedented growth, leading to a tenfold increase in its stock price, per Reuters, which, in turn, caused the value of stock options awarded to the directors and Musk to rise significantly. Tesla contended that the stock options were used to align the directors’ incentives with investor goals.
The current settlement does not affect Elon Musk’s $56 billion compensation package, which is the subject of a separate lawsuit and awaiting a ruling. The complaint, filed by a Tesla shareholder in 2019, claims that Musk’s board-approved compensation package from 2018 was excessive and breached the board’s duties to shareholders.
Related: ‘I Make Trucks for Real People’: Ford CEO Slams Tesla’s Cybertruck
Related Posts
How to Control Your Brain for Optimal Functioning
Ben Angel, bestselling author of Unstoppable (Entrepreneur Press® 2018), CLICK, Sleeping Your Way to The Top in Business, and Flee...
Succession Planning Is Vital — Here’s What You Need to Do.
Opinions expressed by Entrepreneur contributors are their own. Business owners know a thing or two about working long hours....
I Won the Lottery—Then Scammed By Best Friend, Dumped By Mom
This article originally appeared on Business Insider. This is an as-told-to essay based on a conversation with Randy Rush,...
3 Safe Gold Stocks Pointing to Buy
Gold is often considered a safe-haven asset during economic uncertainty and is used as a hedge against inflation. Given...
How to Design the Ultimate Online Customer Experience
Opinions expressed by Entrepreneur contributors are their own. Your online customer experience is more crucial than ever. Why? Because...
How a Solopreneur Creates Word-of-Mouth Marketing Magic
Opinions expressed by Entrepreneur contributors are their own. Starting and growing a small business alone is a unique challenge,...
