In a landmark decision, the directors of Tesla Inc. TSLA, including its co-founder Elon Musk, have agreed to return more than $735 million in stock awards to settle a lawsuit accusing them of improperly awarding themselves hefty compensation packages.
This move is seen as a significant step towards addressing investor concerns over corporate governance practices at Tesla.
Tesla shares closed 3.2% higher on Monday, reaching highs not seen since Sept. 23, 2022.
Chart: Tesla Share Price Soars to $290, Reaching End-of-September 2022 Levels
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Details of the Settlement
The directors, which include Larry Ellison, co-founder of Oracle Corp. ORCL; James Murdoch, son of media mogul Rupert Murdoch and Musk’s brother, Kimbal Musk have agreed to return the stock grants and revise the way board-level compensation issues are reviewed. Despite denying any wrongdoing, the directors chose to settle the case to avoid the uncertainty and expense of further litigation, Bloomberg reports.
Also Read: Tesla Prepares To Double Berlin Factory Size, Aiming For 1 Million EVs Annually
The Lawsuit
The lawsuit was filed by the Police and Fire Retirement System of Detroit in 2020, accusing the directors of awarding themselves excessive compensation in the form of around 11 million stock options from 2017 to 2020. The settlement, which is one of the largest ever for a derivative case in the Court of Chancery, will be paid to Tesla to benefit the company.
Impact on Tesla’s Governance
As part of the settlement, the directors have agreed not to receive any compensation for 2021, 2022 and 2023. Furthermore, the board will change the way compensation is determined. This decision came after Tesla defended the lawsuit by arguing the company’s unprecedented growth, which led to a 10-fold increase in the company’s stock price, justified the increase in stock options awarded to the directors and Musk.
Now Read: There Is Potential Long-Term Gains From Tesla’s Aggressive Pricing Cuts: Analyst
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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