Tesla shareholders, including CEO Elon Musk, who were accused of receiving excessive compensation, have reached a settlement with the company amounting to $735 million. The lawsuit, filed in 2020 by the Detroit Police and Fire Retirement System, contested the validity of stock options awarded to Tesla’s board of directors from 2017 to 2020, totaling approximately 11 million options.
Shareholders claimed that the directors granted themselves an unjustifiably high number of stock options for a corporate board. As part of the settlement, the board members, including Larry Ellison, co-founder of Oracle, have agreed to return 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 indicates a willingness by Tesla and Elon Musk to find common ground on matters of corporate governance, highlighting their dedication to shareholders’ well-being and readiness to take accountability for their actions.
In summary, Tesla’s top executives will pay out $735 million to address shareholder concerns regarding excessive compensation. The settlement ends the 2020 lawsuit brought by a pension fund holding Tesla shares, and the funds will go directly to support the company. The board members’ decision to settle aims to avoid further legal disputes and signifies a pivotal moment in corporate governance and how derivative the Court of Chancery handles actions.
