Tesla directors settle overpayment claims for $735M

According to a Monday court filing, Tesla directors will pay $735 million to settle shareholder claims that they overpaid themselves.

A Tesla stock-holding retirement fund settled its 2020 lawsuit. Starting in June 2017, the Detroit Police and Fire Retirement System criticized Tesla directors’ stock options, including CEO Elon Musk, his brother Kimbal Musk, and Oracle co-founder Larry Ellison.

Musk’s $56 billion compensation package was litigated last year. 2019 shareholder Richard Tornetta sued Tesla to rescind Musk’s 2018 pay deal. Tornetta calls the package “the largest compensation grant in human history” and unfairly pays Musk, a “part-time CEO,” without requiring him to focus on Tesla.

Musk’s case will be decided soon.

Tesla directors received 11 million stock options from 2017 to 2020, which shareholders say is excessive. The filing and Reuters say they returned 3.1 million Tesla stock options.

Tesla argued that its directors acted in good faith and in the best interests of Tesla stockholders, but settled to avoid litigation against themselves and the company. The EV maker claimed that unprecedented growth drove Tesla’s stock price up 10x, increasing the value of directors’ and Musk’s stock options. The company said stock options aligned director incentives with investor goals.

The directors also waived their 2021, 2022, and 2023 compensation. At the next shareholder meeting, the board must also change compensation.

One of the largest Court of Chancery settlements ever will benefit Tesla.