Tesla directors hand back bonuses

By Neil Dowling on 22nd July 2023 News, Regulations Directors, Returns, Shares, Tesla

TESLA directors have returned 3.1 million share options, valued at $US735 million ($A1.077b), to the company after abiding by a shareholder lawsuit that challenged the directors’ compensation, leading US auto industry newspaper, Automotive News (AN) is reporting.

The settlement, filed in a Delaware court, resolves a 2020 lawsuit by a retirement fund which holds Tesla stock and challenged stock options that were granted to Tesla directors starting in June 2017.

The report said the settlement does not impact the $US56 billion ($A82b) compensation package of Elon Musk – the biggest ever in the history of public-listed companies.

Mr Musk’s compensation is being challenged by shareholders in a separate lawsuit that went to trial last year. AN said a ruling on this is expected “soon”.

AN said that the directors, including Oracle co-founder Larry Ellison, agreed to return the equivalent value of 3.1 million Tesla stock options, according to a court filing. Tesla did not respond to requests for comment.

“The directors acted in good faith and in the best interests of Tesla stockholders but agreed to settle to eliminate the risk of litigation to themselves and to the company,” the car-maker said in a court filing.

The case was brought by the Police and Fire Retirement System of the City of Detroit in 2020 and the settlement is paid to Tesla to benefit the company, a type of case known as a derivative lawsuit.

AN said that the settlement is one of the biggest ever for a derivative case in the Court of Chancery, a major venue for shareholder litigation.

The directors were accused of awarding themselves “unfair and excessive compensation” in the form of around 11 million stock options from 2017 to 2020 that were alleged to exceed norms for a corporate board.

As part of the settlement, the directors also agreed to not receive any compensation for 2021, 2022 and 2023 and the board will change the way compensation is determined.

Tesla argued that since the stock options were granted the company went through almost unprecedented growth. This had sent the company’s stock price up 10-fold and the shares awarded to the directors and to Mr Musk rose sharply in value. Tesla had argued it used the stock options to ensure the incentives of directors were aligned with the goals of investors.