Tesla's directors are returning $735 million to resolve a compensation lawsuit

In a landmark settlement, Tesla Inc's directors have agreed to return a staggering $735 million to the company to resolve a high-profile lawsuit concerning alleged gross overpayment.

The settlement, disclosed on Monday, in a filing at a Delaware court, addresses a 2020 legal challenge filed by a retirement fund that holds Tesla stock. The lawsuit questioned the legitimacy of stock options granted to Tesla directors starting June 2017.

However, this settlement does not impact on Elon Musk's $56 billion compensation package, currently under scrutiny in a separate lawsuit that went to trial last year.


Directors, including Larry Ellison - co-founder of Oracle - agreed to return the equivalent value of 3.1 million Tesla stock options.

Tesla is yet to comment on the lawshuit, but its directors asserted that they had acted in the best interests of Tesla shareholders and in good faith. Their decision to settle aimed at mitigating potential litigation risks for themselves and the company.

The lawsuit accused the directors of unjustly rewarding themselves with exorbitant compensation in the form of approximately 11 million stock options between 2017 and 2020.

The case was initiated by the Police and Fire Retirement System of the City of Detroit in 2020.

In addition to the financial restitution, Tesla directors agreed to forgo any compensation for the years 2021, 2022, and 2023, and added that the board will undergo revisions in the process of determining compensation.

Tesla argued that the stock options served to align the directors' incentives with the interests of the investors, as they were crucial in motivating the board to pursue ambitious goals for the company's growth and success.