📺 Stream EntrepreneurTV for Free 📺

Tesla Directors Settle Shareholder Claims for $735 Million in Landmark Lawsuit, Agree to Compensation Revisions Elon Musk and other directors were accused of granting excessive compensation of 11 million stock options over three years.

By Madeline Garfinkle

Key Takeaways

  • A lawsuit challenged stock options granted to Tesla directors from 2017 to 2020.
  • The settlement is one of the largest ever for a derivative case filed in the Court of Chancery.
  • As part of the settlement, directors have agreed not to receive compensation for 2021-2023.
entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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

Madeline Garfinkle

News Writer

Madeline Garfinkle is a News Writer at Entrepreneur.com. She is a graduate from Syracuse University, and received an MFA from Columbia University. 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

These Coworkers-Turned-Friends Started a Side Hustle on Amazon — Now It's a 'Full Hustle' Earning Over $20 Million a Year: 'Jump in With Both Feet'

Achal Patel and Russell Gong met at a large consulting firm and "bonded over a shared vision to create a mission-led company."

Business News

These Are the 10 Most Profitable Cities for Airbnb Hosts, According to a New Report

Here's where Airbnb property owners and hosts are making the most money.

Side Hustle

How to Turn Your Hobby Into a Successful Business

A hobby, interest or charity project can turn into a money-making business if you know the right steps to take.


Want to Be More Productive? Here's How Google Executives Structure Their Schedules

These five tactics from inside Google will help you focus and protect your time.

Starting a Business

This Couple Turned Their Startup Into a $150 Million Food Delivery Company. Here's What They Did Early On to Make It Happen.

Selling only online to your customers has many perks. But the founders of Little Spoon want you to know four things if you want to see accelerated growth.